Problems of standard costing in a modern environment are:
i) Variance analysis concentrates on only a narrow range of costs, and does not give sufficient attention to issues such as quality and customer satisfaction.
ii) Standard costing emphasizes direct labor costs, which are only a small proportion of total costs in modern manufacturing environments, making this emphasis inappropriate.
iii) Many variances in a standard costing system focus on the control of short-term variable costs, while in modern manufacturing environments, a majority of costs, including direct labor, tend to be fixed in the short run.
iv) Standard costing relies on repetitive operations and homogeneous output. However, many organizations today are forced to continually respond to changing customer requirements, resulting in less repetitive output and operations.
v) Standard costing systems were developed in more stable business environments, while today’s business environment is more dynamic and does not allow for the assumption of stable conditions.
vi) The use of standard costing assumes that performance to standard is acceptable, whereas the modern business environment is more focused on continuous improvement.
vii) Standard costing systems often produce control statements weekly or monthly, but modern managers need much more prompt control information to function efficiently in a dynamic business environment.