The benefits of cost accounting cannot be denied. However, there are disadvantages or limitations to establishing a costing information system. This is more pronounced if the information system of the entity will operate different systems for financial and cost accounting.
It is expensive
Having a computerized costing system might be expensive unless an ERP that integrates both financial and costing systems are available for use. However, in most cases, this is not possible. Thereby increasing the expenses on information technology for the business.
The complexity of the system
Setting up a costing system is one thing, but understanding its complexity is another. As a result, it is difficult for managers without expert knowledge to harness the data provided. Also, it isn’t easy for finance professionals to pick up the data required from the system.
Cost of employing experts
Aside from the expenditure involved in setting up a cost accounting system, employing finance professionals with cost and management accounting knowledge to manage the system is expensive. A CIMA professional may cost the entity between 250,000 and 500,000 Naira per month.
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Cost of maintenance
Aside from acquiring the information system, maintenance fees may erode the business’s profit. Most software manufacturers will charge additional fees after acquiring the system. This will help them have sustainable income at the expense of the entity that buys the software. The additional costs are deducted from the business income, thereby reducing the profits earned.
Difficult to use by service firms
The techniques used in cost accounting are mainly for manufacturing and trading entities. It is difficult to apply such skills to service firms. One reason for this is the lack of material inventories to make other products. However, service firms have found a way of using costing principles and methods to determine the cost of their services.