Uniform Cost Accounting | Cost Accounting - B Com PDF Download

Concept and Objectives

Uniform costing is not a distinct costing methodology; rather, it involves the adoption of shared accounting principles and, in certain instances, common methods by companies within the same industry. This ensures that their cost figures are comparable. Uniform costing can be described as the "utilization of the same costing principles and practices by multiple undertakings." Essentially, it is a cost accounting technique where various firms in a particular field or industry employ a similar costing system, aiming to generate cost data with the highest level of comparability. The establishment of standard costs and the enforcement of cost control are achieved through mutual comparison within the firm.

The identification of relative efficiency and inefficiencies in production allows for the recommendation of appropriate measures to control and minimize costs. The goals of uniform costing include standardizing accounting methods and aiding in the determination of suitable product prices for firms that adopt this approach.

Thus objects of a uniform costing system are:

(a) It provides reliable data for making inter-unit comparisons of cost performances.
(b) It helps to arrive at the cost of production for the industry as a whole on a common basis acceptable to all individual units or firm of the industry.
(c) It provides data to compare the cost of production and the production efficiencies between one firm and others.
(d) It ensures that the product prices are based on authentic costing data.

Application of Uniform Costing (Scope)

Uniform costing may be applied in two different situations.

Common Control and Management:
Uniform costing is applicable when a group of units or firms producing similar goods and services are under common control or managed by the same group of executives.

Trade Associations:
Firms or units associated with a trade association may opt for uniform costing. Through this association, various firms can adopt a shared costing method and practice.

Requisites of Uniform Costing

The adoption of uniform costing is contingent upon specific preconditions. The effectiveness of a uniform costing system hinges primarily on the collaboration extended by various units or firms towards the functioning of the system. Each unit must be willing to provide the necessary accounting and costing information without reservation to a central body formed by them for the implementation of the uniform costing scheme. This body is tasked with correlating, analyzing, and consolidating the information received from the various units.

Following are pre-requisites of uniform costing:

1. Firms or units adopting uniform costing must be ready to provide and share accounting and costing information freely.
2. They should adopt a common system of costing regarding classification, distribution and absorption of costs. They must agree on a common technique of costing e.g., absorption costing, standard costing or marginal costing.
3. The firms must use a common terminology and procedure for cost ascertainment and cost control.
4. There should not be any restriction from the Government in adopting uniform costing.
5. A central body or proper organisation must be set up for preparing comparative statistics for the use of member units participating in the uniform costing.
6. Above all, the most important is that units or firms must have mutual trust, confidence and cooperation.

Key Factors

The effectiveness of uniform costing relies on specific factors unique to each unit. These factors encompass the consistency in the method of production, the organizational size, and the accounting methodology. Uniformity in the method of production is essential, necessitating both uniformity in output and the use of identical machinery. Deviation in machinery types can lead to variations in efficiency and, consequently, costs.

Other production factors may vary, and unless these are standardized with equitable weightage, the objective of uniform costing will not be achieved. The size of participating units' organizations should be consistent; significant differences in production capacities prevent the adoption of the same principles and practices.

Furthermore, the accounting method across member units should be uniform. Divergence in accounting methods can result in a lack of timely and frequency-aligned information for uniform costing, causing unnecessary delays.

Standardisation

The essential feature of Uniform Costing is adoption of standardised principles and methods of cost accounting by different units introducing the method.

The standardisation may extend to following:

1. Method of Cost Accounting e.g., job costing, process costing or a variation of one or both of these.
2. Accounting classification including coding.
3. Content of each account.
4. Methods of defining costs:
   • Direct material
   • Direct labour
   • Direct expenses
   • Overhead costs regarding factory, selling, distribution, administration, research and development.
5. Methods of recovering depreciation.
6. Methods of allocating and/or apportioning overheads costs to cost centres and jobs or products
7. Material control including the pricing of issue and valuation of stocks.
8. Methods of recording accounting data e.g., integrated accounting system.
9. Reports and statements for planning and control.
10. System of remunerating labour e.g., time rate or piece rates.
11. A Central Body should be established for carrying out the work of uniform costing.

The standardisation should be achieved by developing a ‘ Uniform Costing Manual’