Strength And Weakness Of Conventional Costing Analysis

3.0 STRENGTH AND WEAKNESS OF CONVENTIONAL COSTING

3.1 Strength of Conventional Costing

3.1.1 Easy

Traditional costing is very straightforward and somehow not difficult to imply. The manager can easily access and track all the direct costs which related with a certain product, which are the labor and direct material costs. A short and simple way to allocate overhead costs is through using direct labor hours. It would be very complex by assigning overhead costs to various products.

3.1.2 User friendly and little training is needed

Conventional costing is simple, non-complex costing system, hence it is said to be user friendly. Since there is no technological and machines that is involved in it, therefore there is not much training to be performed or to be conducted by the organization. The worker only need basic working skill and specialized skill and techniques are not required. The worker can easily learn up the system without much effort.

3.1.3 Convenient and simple to be applied

In a small firm, conventional costing system can be used. For example, in a small and developing firm that only have one product line, the final cost have no difference no matter uses Conventional Costing System or Activity-based Costing System. Same result of final cost will be obtained. In this case, Conventional Costing System is more convenient to be applied since it is simple and easy to be handled.

3.2 Weaknesses of Conventional Costing

3.2.1 Ability to Distort

Conventional Costing would be useful on presenting the manufacturing cost of a product in a business which manufactures huge amount but limited choices of products. But as times pass by, when there us increment in the diversity of output, more variety of products are being produced, tradit...

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...he overhead costs also causes the quality of the products to be lowered. When the quality of the product became worse, the products of that organization produced cannot meet the expectations of the customers. When the needs of customer is not satisfied, they will not purchase products from the organization, the business of the organization will decline and this will eventually lead to the decrement of the business performance of the organization.

3.2.7 Lack of accuracies

The segregation of obvious traceable and fixed cost is significant in order to do segmented cost reporting. This is crucial due to the traceable fixed cost are engaged to department whereas the common fixed costs are pinned in the conventional costing system. The theory proposed by conventional costing system is too wide and general. This method is obviously lack of accuracies, imprecise, and vague.