S.P.P.U.

2013 Pattern HRM, Rajgurunagar

K.T.S.P. Mandal’s
Hutatma Rajguru Mahavidyalaya
Rajgurunagar – 410505

Third Year B. Com

(2013 pattern)

Ist - Term

Subject – Cost & Works Accounting - III

Prof. G.M. Dhumal

(Head, Department of Commerce)
ganeshakole@gmail.com

Topic – Uniform Costing

and Inter-firm Comparison

Compiled by Prof. G.M. Dhumal

S.P.P.U. 2013 Pattern HRM, Rajgurunagar

 Introduction -
It is observed that in different industries or in different units of the same
industry, different types of Costing principles and practices are used. In this
situation accumulation and interpretation of Costing data for the sake of Appraisal or
comparison of performance or decision making becomes very difficult. Uniform costing,
therefore, seeks to introduce certain common principles and practices which help to provide a
common denominator in the collection, presentation and interpretation of the costing data in
different undertakings. It is the adoption of standardized principles and methods of Costing
by number of business Enterprises.
Thus, the system of uniform costing may be suitable only when two or more units
want to follow the same costing principles and practices.

 Meaning -
Uniform costing refers to the use by several undertakings of the same costing
principles or practices. Uniform costing is not a new concept or method of cost accounting. It
is adoption of identical costing principles and procedures by several units of the same
industry or several undertakings by mutual agreement.
Uniform costing is a body of principles and accounting methods which when adopted
in the accounting system of a firm enables obtaining cost and accounting figures by
individual undertakings within an industry, which will be fully comparable. It is observed
from this definition that unless there is some basic similarity among the undertakings within
an industry, with regard to their structure and methods, seeking similarity and a common
pattern in the accounting system would be difficult.

 Definition –

1. ICMA, London, defines uniform costing as,

“the use by several undertakings of the same costing systems that is the same
basic costing methods, principles and techniques”.

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S.P.P.U. 2013 Pattern HRM, Rajgurunagar

2. According to Glover, uniform costing is,

“a system of uniform application of the principles of a costing method agreed upon
and adopted by the whole or majority of the manufacturer or executives, in any specific
industry”
Thus, uniform costing is a system which uses common Accounting Principles, basic
concepts and standard cost accounting practices, by several firms in the same industry.
Uniform costing is not a distinct method of Costing. Rather, it is the practice of using
the same costing principles and/ or practices by number of firms. It helps in the inter firm
comparison, fixation of prices, cost control, cost reduction and in seeking tax relief or
protection from government.

 Objectives -
1. To promote uniform costing method with a view to facilitate valid cost comparison
between organizations
2. To enable each firm to measure its own efficiency in terms of the industries standard
and eliminate inefficiencies
3. To serve as a basis for government subsidies or grants which need similar costing
systems to ensure equitable distribution
4. To serve as a basis of competitive but non-destructive bidding
5. To effect improvement in labour and machine performance, production methods and
techniques
6. To fix a common price which is acceptable to all. it brings stability in prices of
production.
7. To help in standardizing several common processes of operation use in member
undertakings
8. To help trade associations in regulating production capacity and deciding on pricing
policy.

 Areas of Uniform Costing –

In the stage of designing and installing a Uniform Costing system, it should be

ensured that the total uniformity is achieved in certain important areas stated below:

1. Method of costing to be used to ascertain the cost

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S.P.P.U. 2013 Pattern HRM, Rajgurunagar

2. Classification of costs and their expected accounting treatment

3. Selection of suitable cost unit and finalizing the cost centers
4. Methods of valuation of inventory
5. Allocation and apportionment of joint costs
6. Appropriate bases for absorption of costs
7. Methods of pricing of material issues
8. Methods and rates of depreciation on fixed assets
9. Methods of labour remuneration and incentives to workers
10. Treatment of waste, spoilage, defectives scraps etc.
11. Codification system
12. Accounting treatment of items of labour cost viz. overtime, idle time, labour turnover,
holiday pay etc.
13. Format of cost statements and cost reports
14. Non-cost items and their accounting treatment
15. Techniques of cost control
16. Accounting treatment of administration and selling and distribution overhead
expenses

 Advantages of Uniform Costing -

A) Advantages to participating units:
1. Facilitates negotiations with Government agencies –
It helps trade associations in negotiating with the government in trade matters,
particularly, when an industry seeks any assistance or concession from the
government in matters of subsidiary, exports, taxation, duties and price determination
etc.
2. Facilitates price fixation –
Uniform costing is of great help in price fixation. Unhealthy competition is
avoided between the firms in the same industry in framing policies and submitting
tenders.
3. Helps government in regulating the prices of production –
It helps the government also in regulating the prices of essential and important
items such as bread, four, sugar, cement and steel etc.

Compiled by Prof. G.M. Dhumal

S.P.P.U. 2013 Pattern HRM, Rajgurunagar

4. Useful for management control –

Performance of individual units can be measured against norms set for the
industry. It assists in the standardization of operations and performance in the
industry.
5. Healthy competition –
It avoids cut-throat competition by ensuring the competition among member
units proceeds on healthy lines.
6. Locating weak-spots –
Comparison helps in locating weak spots and the remedial action is taken
which is necessary.
7. Stability –
Weaker sections can take advantage of the efficient methods of production and
production control of the better managed units so as to increase their own efficiency.
This provides stability in the industry.
8. Economy –
Research and development on a large scale is possible only in big companies.
The benefits of R & D can be passed on to smaller units leading to economy in the
industry as a whole.
9. Computerized accounting system is possible –
Uniform costing makes it easier to computerize the accounting system of
various organizations due to similar cost classification and report layout.
B) To workers of participating units –
i) Introduction of a uniform wage structure in all the firms of industry in the same
locality helps in reducing labour turnover.
ii) With increase in profits of participating firms, more bonus and amenities may be
provided for workers.
C) To Trade Association –
i) In uniform costing, the records are compiled on a scientific footing. This helps the
trade association in negotiating in any trade matter with the government, say for
adjustment of tariffs, release of imported material, price fixation, financing or
modernization etc.
ii) With joint efforts of the participating members, the trade association can better
campaign for exports and improve the competitive position in the foreign market.

Compiled by Prof. G.M. Dhumal

S.P.P.U. 2013 Pattern HRM, Rajgurunagar

D) To Consumers –
i) Uniform costing results in economy, the benefits of which is also passed on to the
consumer in the form of lower prices.
ii) Prices based on uniform cost information lead to consumer satisfaction thereby
improving relations between customers and industry.
E) To Industry –
i) Uniform costing enables industry to place significant cost data before the
government and trade unions for negotiations in respect of matters such as, tariffs,
import of raw materials and fixation of minimum wages.
ii) Elimination of all types of wastages and inefficiencies increases the competitive
strength of the industry in the field of export trade.

 Limitations of Uniform Costing –

1. Difficulty in Application –
It is difficult to lay down uniform methods and principles of cost analysis,
ascertainment and presentation among units widely varying in size, degree and nature
of mechanization and in the use of methods, operation and processes.
2. Expensive –
From the point of view of small units particularly, the system becomes too
expensive to operate the cost of installation and operation will not be commensurate
with the benefits derived.
3. Unwillingness for supply of Information –
The main limitation of this system is that the individual firms may be
unwilling to disclose the information relating to the cost and profitability. They may
maintain secrecy.
4. Monopolistic Conditions may Create –
It may create monopolistic tendencies within the industry. Prices may be
raised, and supplies curtailed in order to create shortage. Thus, it may be harmful to
the interest of consumers.
5. Rigidity –
It may tend to rigidity of the cost system. Flexibility is affected
6. Difficulty in Understanding –

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S.P.P.U. 2013 Pattern HRM, Rajgurunagar

The standardized technology adopted by the group may not be understood by

the individual members.
7. Difficulty in Achieving Uniformity –
Many practical difficulties are arised in the way of achieving absolute
uniformity. In applying uniform costing to units with different cost and production
structure, due consideration is to be necessary for imputed costs, depreciation tax
structure, research and development costs etc. which widely differ away the various
units in the industry.

 Requisites for Uniform Costing –

1. There should be understanding, mutual trust and co-operation among the
participating units
2. There should be free exchange of ideas and methods
3. There should be no rivalry or jealousy amongst the participating units
4. The bigger units should be prepared to share their experience with smaller
units so that the latter may improve their know-how and performance
5. There should be uniformity of interest and the participating members should
realise the significance and use of uniform methods
6. Willingness in the participant units to share their secrets regarding methods of
production, collection and preservation of costs
7. A basic similarity in the organization, products produced, methods and
processes of production, capital and cost structures
8. Willingness to share technical know-how and efficiency
9. Willingness to exchange of information regarding utilization of men, machines
and materials and cost savings in different directions
10. Use of common terminologies and procedure regarding cost ascertainment and
cost control
11. Preparation of uniform cost manual regarding the organization accounting
system, costing system, production methods, marketing system and reporting
of the information to the management

Compiled by Prof. G.M. Dhumal

S.P.P.U. 2013 Pattern HRM, Rajgurunagar

 Uniform Cost Manual –

Uniform cost manual is a written document, which may be in the form of
booklet or bulletin, containing the principles, methods and procedures for the
ascertainment and control of cost of uniform costing. It is necessary for the successful
operation of uniform costing system. Such a manual provides guidelines to the
participating firms to organize their cost accounting system on a uniform basis.
It is a document, booklet or a bulletin in written form containing instructions
to be followed in connection with cost ascertainment and cost control. It represents
the details of the recommended cost plan and serves as a guideline for the
participating firms to organize their cost accounting system so that procedures and
principles of costing are correctly and uniformly applied.
 Purpose –
1. Selling appeal i.e. they should present in an interesting way the compelling
reasons for the desirability of making use of uniform methods.
2. Serving as a comprehensive reference book on accounting procedure
3. Usefulness to the executives and accountants in solving problems of installation of
the recommended uniform methods
 Contents –
Uniform cost manual contains the following chapters as shown below:
a) Introduction
b) Accounting system and plans
c) Organisation
d) Presentation of Information
e) Control
f) Miscellaneous Information

 Inter-firm Comparison –
One of the advantages of uniform costing is that it makes possible inter-firm
comparison i.e. the comparison of one business with other businesses in the same
trade or industry. The inter-firm comparison is a management technique which makes
it possible for an organization to compare its performance with that of others in the
same activity. It involves a comparison of performances, efficiencies, costs and profits
of various firms in an industry.

Compiled by Prof. G.M. Dhumal