Most managers set standard cost based on experience, or the actual costs of the previous production schedule in the applicable conditions.
The success of establishing a standard costing system, depends on the setting of proper standards. This requires involving the people behind the actual production process, such as the production manager, purchase manager, sales manager, chief engineer, and human resources manager along with the cost accountant.
There are of course, disadvantages of standard costing. Standards are subject to change, and standard cost accounting techniques require periodic revision of standards to accommodate organizational or environmental changes. Failure to make such changes when conditions change, makes such standards inaccurate and irrelevant. Standard costing techniques is a continued activity for the optimum utilization of resources.
A major limitation of standard costing techniques is that it does not recognize variability. It does not accommodate upper and lower limits of optimal costs, and rather provides an absolute figure which remains very hard to match at all times.