Uniform costing is not a separate or distinct method

of cost accounting like job costing or process costing.

It is only a system of cost accounting to be used by
the members of the industry or trade association. It
involves adoption of same costing principles,
practices and procedures by the individual members
of the industry for inter-frm comparison.The system is
made operative through Trade Association or
hamber of ommerce or some other central agency.
Its underlying idea is that !hatever costing methods
are used, the same should be applied uniformly by all
the members of the industry. "efore a uniform
costing system is applied, it is utmost necessary to
educate the members about the desirability of this
system and its underlying principles. Uniform costing
is not a ne! concept. It !as frst introduced by the
#ational Association of $tove %anufacturers of U.$.A.
!hich developed a uniform formula for use by its
members for costing industry&s products. $imilarly, a
uniform costing system !as adopted for printing
industry in the United $tates. "ut in U.'., "ritish
(ederation of %aster )rinters !as the frst
organisation to introduce a uniform costing system.
In India, it is being used in coal industry, steel industry
and fertiliser industry. There is a good scope of using
uniform costing system in other industries too. I%A
defnes uniform accounting as *a system, using
common concepts, principles and standard accounting
practice, adopted by di+erent entities in the same
industry to facilitate inter-frm comparison.,
1

Application of Uniform Costing System:-
$ingle ompany having a number of factories
located at di+erent places producing similar
products or performing similar operations. (or
e-ample, this system is being used by
Associated ement ompany for its plants. In
this case, management prescribes a set of
forms and procedures for the plant and all the
records are maintained in a uniform manner.
A number of companies !ithin the same
industry. #ormally Trade Associations or
hambers of ommerce coordinates the
function of uniform costing system. %embers
of the association are re.uired to maintain
uniform costing records !hich are helpful in
measuring the operating e/ciency of its
members. It ensures that cost data submitted
by member companies are comparable and
consistent.
Introduction of Uniform osting helps the
companies to submit reliable cost data to price
f-ing bodies, like "ureau of Industrial costs
and )rices or other 0ovt. departments to
determine the average cost and f-ing the fair
selling prices of various products.
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Objectives of Uniform Costing:-
To have a reliable cost data for inter-unit or
inter-frm comparison of costs.
To compare the operational e/ciency of
individual members against industry&s overall
performance of all member units.
To f- a common selling price for the industry
as a !hole on the basis of cost of production of
all member units.
To reveal lines of individual products !hich
have been marketed on an unproftable basis.
To reveal lines of individual products !hich
have been marketed on an improftable basis.
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%ember-companies adopt one best method of
cost accounting system kno!n to the industry.
This eliminates unsound method and saves
costs re.uired in perfecting systems through
e-pensive e-perimentation.
#e! companies can adopt it as a ready-made
system. 1ther companies can adopt the
common system for improving their e-isting
system.
It develops a sense of a!areness for
production e/ciencies !ithin the industry for
controlling costs.
It provides standard guidelines for pricing of
products and indicates ho! prices f-ed belo!
la certain level may be self-defeating even
though it may bring additional sales.
It is benefcial to all the competing companies
for flling tenders and .uotations and
conse.uently ill-e+ects of competition are
avoided.
In case of 2cost-plus& contracts, uniform
costing facilitates preparation of cost sheets
on commonly accepted standard principles
and practices. Thus, it helps early fnali3ation
of 2cost plus& claims.
4
It helps the hambers of ommerce and
Industry to present their case to 0overnment
on matters such as tari+s or e-port incentives.
It encourages research and development !ork
at comparatively lo! cost to the member-
companies. The benefts of research and
development carried out by large scale
organi3ed units can be shared by the small
units.
It enables the member-companies to receive
the services of cost e-perts jointly !ith the
minimum e-penditure.
It facilities the introduction of uniform !age
structure for the industry as a !hole.
It serves as a pre-re.uisite to cost audit and
inter-frm comparison.
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The various member-units in an industry di+er
!idely !ith regard to location, age, condition
of plant and degree of mechani3ation. This
di+erence is sometimes so !ide that it does
not permit e/cient use of uniform costing
system.
(or smaller units, this system may not
commensurate !ith the benefts derived.
Uniform costing system may not
commensurate !ith the benefts derived.
The standard terminology used in the uniform
costing system may not be understood
properly by the member companies. 4o!ever,
this objective can be overcome by introduction
of Uniform osting.
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For successful application of uniform costing
system, the following conitions must be
satis!e:
The members of the trade association or
hamber of ommerce should !ork !ith a
spirit of mutual trust and cooperation.
%embers should e-change their ideas freely,
!ithout fearing the leakage of secrecy.
The !ell-organised and large-scale sector
should be prepared to pass on the
technological improvements in the
process5method of production to the other
companies !ho unable to conduct their o!n
research and development activities.
The companies must furnish full and correct
information to the Association so the e/ciency
of the members-companies can be compared.
The members should not !ork !ith a sense of
rivalry and jealousy.
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"he term #Uniform Cost $lan% covers activities
such as cost accounting system, format for
reports, analysis of cost ata, etc& Some of the
activities which may be carrie on partially or
completely are as follows:
)ublication of pages, speeches or discussions of
important matters pertaining to costs in Trade
6ournals.
)ublication of educational literature pertaining to
objectives of cost fnding.
$tudies of particular costing problems in the
industry to develop sound principles.
Activities of counseling nature rela-ing to
establishment or operatives of cost accounting
system.
7evelopment of estimating formulae or short-cut
methods of establishing basis for pricing.
7evelopment and promotion of uniform cost
programme.
ost studies in determining average or
representative cost of products, functions or
activities for general information of members.
8egular collections and dissemination of cost
data under some kind of reporting plan.
omplete analysis of cost data to interpret
results to sho! trends, !eakness of operation,
etc.
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9hether cost data are re.uired for one
product or al the products produced in a
factory.
osting techni.ues to be used, i.e, historical,
standard or marginal.
7efnitions of various elements of cost such as:
direct material
direct labour
cost of direct services
factory overheads, administrative and selling
overheads.
Items !hich are e-traneous to costs such as
bad debts, donations, etc, and to be e-cluded
from cost.
lassifcation of production and service
departments.
%ethod of treatment of spoilage, defectives,
etc, in costs.
Treatment of research and development in
costs and methods of allocation of research
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and development to each cost centre5cost
unit.
Treatment of handling and storage cost of ra!
materials.
%ethod of pricing of materials used such as
(I(1, ;I(1, simple average, !eighted average.
)roduction centres, cost centres, etc, to be
used for analysis and comparison of costs.
%ethods of payment of remuneration.
Treatment of items like interest on o!n capital,
rent of premises o!ned, etc
%ethod of !orking out depreciation, i.e,
!hether straight line method or !ritten do!n
value method to be used.
%ethod of apportionment of service
departments costs to production departments.
$ystem of classifcation and codifcation of
cost accounts.
%ethod of valuation of !ork in progress.
The method of presentation of data and
reporting to management.
Treatment of under5over absorbed overhead,
eg. Applying supplementary rate or !rite o+ to
proft and loss account.
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(or successful implementation of uniform costing
system, it is the primary duty of a Trade Association of
devise a cost manual containing recommended cost
accounting plan. All the participant members should be
invited for detailed discussion before a cost manual is
fnalised. The cost manual is of immense help in guiding
the participating frms to operate their accounts on
uniform basis. If the industry consists of companies of
similar si3e and a common range of products, it is
entirely feasible to present the accounting procedure in
one manual for use of all members. 9here, ho!ever,
there is a great disparity in si3e of companies in an
industry, it is better to issue a separate manual for large
companies and one for the small.
"he characteristics of a goo uniform cost manual
are summari'e below:

It should present a strong case for the
desirability of using uniform cost accounting
methods.
It should serve as a comprehensive reference
book on cost accounting procedures.
It should be useful to the e-ecutives5cost
accountants for saving all problems in
installation and e-ecution of recommended
uniform costing method.
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(ntrouction
$tatement of objectives and purpose of the
system.
<ducation the management and people about
the uniform costing system
$cope of the system.
ase for use of the system.
Organisation
1rganisation for developing and operating the
system.
$tages in !hich the system is to be
introduced.
%anagement of the organisation by trade
association or other!ise.
Accounting system
0eneral principles of accounting to be
adopted.
Terminology to be follo!ed.
7etails of coding system.
lassifcation and description of accounts.
8econciliation bet!een fnancial accounts and
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cost accounts.
Accounting period.
)etho of costing *e&g& process costing,
job costing, stanar costing&+
Unit of production.
osting periods =e.g. monthly, .uarterly, half-
yearly or annual>
<-penses to be considered in costs.
%ethods to be used for inter-unit transfer
pricing.
lassifcation of departments =)roduction
department, service department, etc.>
%aterial cost ? direct and indirect, treatment of
idle time, treatment of fringe benefts,
overtime, production bonus.
1verhead?classifcation,collection,
apportionment and allocation. 7irect and
indirect depreciation, method of depreciation
to be used, research and development
e-penditure,methodofallocation5appotionment
of service department cost to production
department, capacity cost etc.
,eporting&
)eriodically of reports.
;evels for !hom the repors are to be sent.
ost statements.
8atios ?cost as !ell as fnancial.
$upplementary data.
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Nature and extent of information to be
accumulated
Inter-frm comparison re.uires that all relevant and
detailed cost information should be collected regarding
business frm. #o defnite list of information can be
suggested for collection. 4o!ever, the follo!ing are the
usual information !hich are applicable to all industries
and therefore can be collected for the inter-frm
comparison:
Information regarding cost and cost structure.
;abour e/ciency and labour utilisation.
%achine e/ciency and machine utilisation.
8a! materials consumed !astage and stores-
keeping.
8eturn on capital employed.
;i.uidity and li.uid resources.
8eserve and appropriation of profts.
7ebtors and creditors.
%ethods of production and technical aspects.
Inventory and inventory systems.
Responsibility for collection, coordination and
presentation of information
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In some countries separate organisations have been
established for collecting and presenting information. in
India inter-frm comparison information is collected by
various trade associations, chambers of commerce, the
national productivity council, research and statistics
division of several commerce and trade journals and
periodicals and ne!spapers.
Method of collection and presentation of
information
Information for the purpose of inter-frm comparison is
usually supplied by business enterprises to organisation
regularly. Information can be collected by feld !orkers
also. After the information is collected, it is properly
compiled and arranged and fnally a consolidated report
is prepared for the beneft of business frms. (or the
information to be purposeful, it is essential that
participating frms should agree about the meaning of
various terms used in ratios and accounting information
The printing industry in U' has played a leading
role in the establishment of uniform costing system
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this industry !as frst to introduce the uniform
costing system.This !as a !elcome step for
introduction of inter-frm comparison in the printing
industry. The industry a!as divided into various
groups each having its o!n ratios based on
di+erents characteristic of the frms. The division is
based on the follo!ing characteristics:
#ature of activities carried in the printing industry,
eg, genral printers , book printers,. ne!spapers
houses, and
$i3e determined bu number of employees.

It is to be pointed out here that actual fgure sof
proft or other details are not issued to members
so that there is no betraying of confdence.
<mphasis is al!ays laid on depicting the average
results so that a single frm can make a
comparison to see !hether its o!n ratios are
e.ual, better or !orse than the average for its o!n
particular group. (or each ratio the median and
upper and lo!er .uartiles are computed. The
principal ratios used by the principal industry in
u.k are given.
The benefts from inter-frm comparson include the
advantages of uniform costing system and benefts
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arising out of the use ratios. The advantages of uniform
costing system has been discussed before.
The follo!ing additional advantages are obtained
from inter frm comparison:
The e-tent of !eakness of the participating frms
is reaveled. %anagement is, therefore induced to
take suitable remedial actions.
The participating frms give information
voluntarily and !illingly in the prescribed
.uestionare. The defnations of various terms are
clearly e-plained to the users. Thus the results
obtained from the information are accurate and
capable of being compared.
Inter- frm comparison promotes cost
consciousness among the members of the
industry.
It enables the government to take measures for
e+ecting price regulation.
It facilitates government to grant protection to
industries, !herever necessary.
It introdues a sense of healthy competition
among the participating frms.
It provides substantial data to the members-
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frms to present their case to government.
It forces 2self searching& e-ercise among the
members-frms.
"he bene!ts arising from inter-!rm comparison
have been outline above& (t is very goo practice
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which promise substantial bene!ts to the
members of the inustry& "he practical i-culties
which are often e.perience in the
implementation of (FC scheme are summari'e
below&
The member-frms often e-press resistance to
the idea of disclosing data relating to the
performance.
$atisfaction !ith the present profts may bring
about a sense of complaceny !hich is
disastrous for active participation in the
implementation of I(
9hen the companies do not follo! suitable
cost acconting system,the inter frm
comparison !ill not be meaningful and
e+ective.
#on availability of suitable basis for
comparison presents problem to the
introduction of I(.
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