Uniform Costing and Inter Firm Comparison
Uniform Costing is not a distinct method of costing. In fact, when several undertakings start using the same costing principles and/or practices they are said to be following uniform costing. The basic idea behind uniform costing is that the different concerns in an industry should adopt a common method of costing and apply uniformly the same principles and techniques for better cost comparison and common good. The principles and methods of compilation, analysis, apportionment and absorption of overheads differ from one concern to the other in the same industry; but if a common or uniform pattern is adopted by all, it helps mutually in cost control and cost reduction. Therefore, it is necessary that a uniform method of costing should be adopted by the member unit of an industry. Objectives of Uniform Costing: The main objectives of Uniform Costing are as follows:— 1.
Facilitates Comparison: To facilitate the comparison of costs and performances of different units in the same industry; it provides objective basis.
Eliminates Unhealthy Competition: To eliminate unhealthy competition among the different units of an industry.
Improves Efficiency: To improve production capacity level and labour efficiency by comparing the production costs of different units with each other.
Provides Relevant Data: To provide relevant cost information/data to the Government for fixing and regulating prices of the products.
Ensures Standardisation: To bring standardisation and uniformity in the operation of participating units.
Reduces Cost: To reduce production, administration, selling and distribution costs, and to exercise control on fixed costs. Essential requisites for the installation of Uniform Costing System: A successful system of uniform costing has the following requirements:— 1. The firms in the industry should be willing to share/furnish relevant data/information. 2. A spirit of cooperation and mutual trust should prevail among the participating firms. 3. Mutual exchange of ideas, methods used, special achievements made, research and know how etc. should be frequent. 4. Bigger firms should take the lead towards sharing their experience and know-how with the smaller firms to enable the latter to improve their performance. 5. Uniformity must be established with regard to several points before the introduction of uniform costing in an industry. In fact, uniformity should be with regard to following points: (a) Size of the various units covered by uniform costing.
(b) Production methods.
(c) Accounting methods, principles and procedures used.
Advantages of Uniform Costing: The advantages accruing from the use of uniform costing system are as follows:- 1. The management of each firm will be saved from the exercise of developing and introducing a costing system of its own. 2. A costing system devised by mutual consultation and after considering the difficulties and circumstances prevailing in different firms is readily adopted and successfully implemented. 3. It facilitates comparison of cost figures of various firms to enable the firms to identify their weak and strong points besides controlling costs. 4. Optimum achievement of efficiency is attempted by all the firms by utilising the experience of other concerns in the industry. 5. Standing in the industry of each firm will be known by making a comparison of its cost data with others. 6. Services of cost consultants or experts may be available jointly to each firm in the industry by sharing their experiences and expenses. 7. Research and development benefits of bigger firms may be made available to smaller firms. 8. It helps in the reduction of labour turnover, as a uniform wage system is the pre-condition of a uniform costing system. 9. It helps Trade Associations in negotiating with the Government for any assistance or concession in the matters of taxation, exports,...
Please join StudyMode to read the full document