Question - State the dis-advantages of Cost Accounting ?
Answer -
Cost Accountancy is an art which has developed in course of time through theories and practices. The theories are based on reasoning and practical experience of cost accountants. Many of the theories have been recognised and accepted in due course of time. So, the accepted theories have grown up through changes to be recognised as conventions.
It is not a full proof system. Cost Accountancy is not regarded as an exact science in the sense that accepted principles of cost accounting still keep on changing with the passage of time. It suffers, like any other branch of accounting, from some limitations.
1. Lack of uniformity:
The greatest limitation of cost accounting is its failure to conform to any uniform procedure. No cost can be said to be exact as they involve a large number of conventions and flexible factors like, materials issue pricing based on FIFO, LIFO, Average or Standard costs; arbitrary allocation of overheads to cost centres; arbitrary allocation of joint costs; adoption of Marginal costs and Standard costs etc.
2. Large number of conventions:
The existence of a large number of conventions and practices in regard to the valuation of stocks, materials issued to different cost centres, apportionment of joint costs stands in the way of finding out ‘time cost’ of a product. Cost—as ascertained by the application of costing principles—is not a true cost but an estimate.
3. Applicability:
In small and medium sized industries, it becomes impractical to introduce costing since it becomes too expensive for the unit.