Uniform Costing

Definition
Uniform Costing is the use by several undertakings of the same costing systems i.e., the same basic costing methods, principles and techniques [T. Lucey] Uniform Costing systems ensure that there are similar costing foundations and reports in a number of organizations. Uniform costing may be employed by members of the same group, various local authorities, or members of the same trade association.

Objectives
a. To promote uniformity of costing methods so that valid cost comparisons can be made between organizations. b. To serve as a basis for competitive but non destructive bidding. c. To eliminate inefficiencies and promote good practices revealed by the cost comparisons. d. To serve as a basis for government subsidies or grants which need similar costing systems to ensure equitable distribution

Features
The main feature of uniform costing is that whatever be the method of costing used, it is applied uniformly in: a. A single enterprise having a number of branches/units each of which may be a separate manufacturing unit; b. A number of concerns in the same industry bound together through a trade association or otherwise; and c. Industries which are similar in nature, such as gas and electricity, various types of transports, and cotton, jute and woolen textiles.

Advantages
a. Genuine cost comparability a. Comparing production efficiency of two units at the time of an amalgamation and merger. b. Benefits management to compare the cost of its own business with the average costs in the industry. b. Basis for data processing: Uniform costing systems make it easier to computerize the accounting system of the various organizations. Similar cost classification and report layouts considerably reduce the systems and programming effort required. c. Staffing costs and staff flexibility: Because of the similar nature of the costing systems it may be possible to use lower grade staff in the separate organizations with qualified, senior personnel at head quarters. Also transferability between organizations may be facilitated.

Disadvantages
a. Inappropriateness to the individual organization: Where members of a trade association use uniform costing, the chosen system may not suit every firm, particularly where there is a range of sizes and structures. Frequently a tailor made system would be better for particular organizations. b. Inflexibility: Uniform Costing systems, like most centralized systems, are slow to adapt to changing conditions and demands upon them.

Areas of Uniformity
1. 2. 3. 4. 5. General classification of accounts Method of overhead allocation Method of overhead absorption Treatment of Scrap and losses Treatment of Joint Costs

Establishing a Uniform Costing System

Uniform costing may be useful to those business firms which are in the same industry, within a single management and also to industries of a similar nature, big or small. The success of uniform costing depends on the following factors: 1. Free exchange of ideas, information practices and techniques. 2. Mutual trust, cooperation, confidence and a desire to share with each other. 3. Bigger enterprises should lend more cooperation and help to smaller enterprises. 4. No concealment of any information. 5. Absence of competition and hatred among participating members.

Uniform Cost Manual

The designing and applications of uniform costing require that a uniform cost manual containing instructions, clarifications, rules and guidelines about cost determination, cost analysis and cost control, should be developed and circulated among the business enterprises that have decided to use uniform costing. A uniform cost manual usually contains the following materials: 1. Introduction: Description of the statement of objectives of the system, scope of the systems, advantages to be achieved and its basis features. 2. Accounting organization: Containing a scheme of organization for designing and operating the cost accounting system. 3. Accounting system: Containing general principles of accounting, a coding system, terminology, classification and description of accounts 4. Cost accounting system: Description of method of costing (job, process, standard costing, etc.,), system of integration in accounts, relation between cost and financial accounts, items to be included or excluded in stocks, classification of departments into producing and servicing, treatment of materials cost and materials losses, classification of material into direct and indirect, classification of labor cost and treatment of labor related costs such are idle time, overtime, holidays, and shift allowances, etc., and Method of overhead allocation, apportionment & absorption. 5. Presentation of information: Description of how the cost information should be presented. Forms and contents of statements to be prepared, forms of reports to management, forms of report to shareholders, detailed operation and production costs, cost ratios, financial ratios and other supplementary information.