1

We gratefully acknowledge the

valuable guidance, suggestions
and clarifications. We are thankful
to our teacher, colleagues and
friends for their significance
support.

PROF. BHARAT PATEL deserves

special thanks for his support and
encouragement during the
preparation of this project.

2
 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-firm comparison.The system is made
operative through Trade Association or Chamber of
Commerce or some other central agency. Its
underlying idea is that whatever costing methods are
used, the same should be applied uniformly by all the
members of the industry. Before 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 new
concept. It was first introduced by the National
Association of Stove Manufacturers of U.S.A. which
developed a uniform formula for use by its members
for costing industry’s products. Similarly, a uniform
costing system was adopted for printing industry in
the United States. But in U.K., British Federation of
Master Printers was the first 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. CIMA defines uniform
accounting as “a system, using common concepts,
principles and standard accounting practice, adopted
by different entities in the same industry to facilitate
inter-firm comparison.”

3
Application of Uniform Costing System:-

 Single Company having a number of factories

located at different places producing similar
products or performing similar operations. For
example, this system is being used by
Associated Cement Company 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 within the same

industry. Normally Trade Associations or
Chambers of Commerce coordinates the
function of uniform costing system. Members
of the association are required to maintain
uniform costing records which are helpful in
measuring the operating efficiency of its
members. It ensures that cost data submitted
by member companies are comparable and
consistent.

 Introduction of Uniform Costing helps the

companies to submit reliable cost data to price
fixing bodies, like Bureau of Industrial costs
and Prices or other Govt. departments to
determine the average cost and fixing the fair
selling prices of various products.

4
 Objectives of Uniform Costing:-

 To have a reliable cost data for inter-unit or

inter-firm comparison of costs.

 To compare the operational efficiency of

individual members against industry’s overall
performance of all member units.

 To fix a common selling price for the industry

as a whole on the basis of cost of production of
all member units.

 To reveal lines of individual products which

have been marketed on an unprofitable basis.

 To reveal lines of individual products which

have been marketed on an improfitable basis.

5
 Member-companies adopt one best method of
cost accounting system known to the industry.
This eliminates unsound method and saves
costs required in perfecting systems through
expensive experimentation.

 New companies can adopt it as a ready-made

system. Other companies can adopt the
common system for improving their existing
system.

 It develops a sense of awareness for

production efficiencies within the industry for
controlling costs.

 It provides standard guidelines for pricing of

products and indicates how prices fixed below
la certain level may be self-defeating even
though it may bring additional sales.

 It is beneficial to all the competing companies

for filling tenders and quotations and
consequently ill-effects of competition are
avoided.

 In case of ‘cost-plus’ contracts, uniform costing

facilitates preparation of cost sheets on
commonly accepted standard principles and
practices. Thus, it helps early finalization of
‘cost plus’ claims.

6
 It helps the Chambers of Commerce and
Industry to present their case to Government
on matters such as tariffs or export incentives.

 It encourages research and development work

at comparatively low cost to the member-
companies. The benefits of research and
development carried out by large scale
organized units can be shared by the small
units.

 It enables the member-companies to receive

the services of cost experts jointly with the
minimum expenditure.

 It facilities the introduction of uniform wage

structure for the industry as a whole.

 It serves as a pre-requisite to cost audit and

inter-firm comparison.

7
 The various member-units in an industry differ
widely with regard to location, age, condition
of plant and degree of mechanization. This
difference is sometimes so wide that it does
not permit efficient use of uniform costing
system.

 For smaller units, this system may not

commensurate with the benefits derived.

 Uniform costing system may not

commensurate with the benefits derived.

 The standard terminology used in the uniform

costing system may not be understood
properly by the member companies. However,
this objective can be overcome by introduction
of Uniform Costing.

8
For successful application of uniform costing
system, the following conditions must be
satisfied:

 The members of the trade association or

Chamber of Commerce should work with a
spirit of mutual trust and cooperation.

 Members should exchange their ideas freely,

without fearing the leakage of secrecy.

 The well-organised and large-scale sector

should be prepared to pass on the
technological improvements in the
process/method of production to the other
companies who unable to conduct their own
research and development activities.

 The companies must furnish full and correct

information to the Association so the efficiency
of the members-companies can be compared.

 The members should not work with a sense of

rivalry and jealousy.

9
The term ‘Uniform Cost Plan’ covers activities
such as cost accounting system, format for
reports, analysis of cost data, etc. Some of the
activities which may be carried on partially or
completely are as follows:

 Publication of pages, speeches or discussions of

important matters pertaining to costs in Trade
Journals.
 Publication of educational literature pertaining to
objectives of cost finding.
 Studies of particular costing problems in the
industry to develop sound principles.
 Activities of counseling nature relaxing to
establishment or operatives of cost accounting
system.
 Development of estimating formulae or short-cut
methods of establishing basis for pricing.
 Development and promotion of uniform cost
programme.
 Cost studies in determining average or
representative cost of products, functions or
activities for general information of members.
 Regular collections and dissemination of cost
data under some kind of reporting plan.
 Complete analysis of cost data to interpret
results to show trends, weakness of operation,
etc.

10
 Whether cost data are required for one product
or al the products produced in a factory.

 Costing techniques to be used, i.e, historical,

standard or marginal.

 Definitions of various elements of cost such as:

 direct material
 direct labour
 cost of direct services
 factory overheads, administrative and selling
overheads.

 Items which are extraneous to costs such as

bad debts, donations, etc, and to be excluded
from cost.

 Classification of production and service

departments.

 Method of treatment of spoilage, defectives,

etc, in costs.

 Treatment of research and development in

costs and methods of allocation of research
and development to each cost centre/cost unit.

11
 Treatment of handling and storage cost of raw
materials.

 Method of pricing of materials used such as

FIFO, LIFO, simple average, weighted average.

 Production centres, cost centres, etc, to be

used for analysis and comparison of costs.

 Methods of payment of remuneration.

 Treatment of items like interest on own capital,

rent of premises owned, etc

 Method of working out depreciation, i.e,

whether straight line method or written down
value method to be used.

 Method of apportionment of service

departments costs to production departments.

 System of classification and codification of

cost accounts.

 Method of valuation of work in progress.

 The method of presentation of data and

reporting to management.

 Treatment of under/over absorbed overhead,

eg. Applying supplementary rate or write off to
profit and loss account.

12
For 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 finalised. The
cost manual is of immense help in guiding the
participating firms to operate their accounts on uniform
basis. If the industry consists of companies of similar size
and a common range of products, it is entirely feasible to
present the accounting procedure in one manual for use
of all members. Where, however, there is a great
disparity in size of companies in an industry, it is better
to issue a separate manual for large companies and one
for the small.

The characteristics of a good uniform cost manual

are summarized 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 executives/cost

accountants for saving all problems in
installation and execution of recommended
uniform costing method.

13
 Introduction
 Statement of objectives and purpose of the
system.
 Education the management and people about
the uniform costing system
 Scope of the system.
 Case for use of the system.

 Organisation
 Organisation for developing and operating the
system.
 Stages in which the system is to be introduced.
 Management of the organisation by trade
association or otherwise.

 Accounting system
 General principles of accounting to be
adopted.
 Terminology to be followed.
 Details of coding system.
 Classification and description of accounts.
 Reconciliation between financial accounts and
cost accounts.
 Accounting period.

14
 Method of costing [e.g. process costing,
job costing, standard costing.]

 Unit of production.
 Costing periods [e.g. monthly, quarterly, half-
yearly or annual]
 Expenses to be considered in costs.
 Methods to be used for inter-unit transfer
pricing.
 Classification of departments [Production
department, service department, etc.]
 Material cost – direct and indirect, treatment of
idle time, treatment of fringe benefits,
overtime, production bonus.
 Overhead–classification,collection,
apportionment and allocation. Direct and
indirect depreciation, method of depreciation
to be used, research and development
expenditure,methodofallocation/appotionment
of service department cost to production
department, capacity cost etc.

 Reporting.
Periodically of reports.

 Levels for whom the repors are to be sent.

 Cost statements.
 Ratios –cost as well as financial.
 Supplementary data.

15
  Nature and extent of information to be
accumulated

Inter-firm comparison requires that all relevant and

detailed cost information should be collected regarding
business firm. No definite list of information can be
suggested for collection. However, the following are the
usual information which are applicable to all industries
and therefore can be collected for the inter-firm
comparison:

 Information regarding cost and cost structure.

 Labour efficiency and labour utilisation.
 Machine efficiency and machine utilisation.
 Raw materials consumed wastage and stores-
keeping.
 Return on capital employed.
 Liquidity and liquid resources.
 Reserve and appropriation of profits.
 Debtors and creditors.
 Methods of production and technical aspects.
 Inventory and inventory systems.

 Responsibility for collection, coordination and

presentation of information

In some countries separate organisations have been

established for collecting and presenting information. in
India inter-firm comparison information is collected by

16
various trade associations, chambers of commerce, the
national productivity council, research and statistics
division of several commerce and trade journals and
periodicals and newspapers.

 Method of collection and presentation of

information

Information for the purpose of inter-firm comparison is

usually supplied by business enterprises to organisation
regularly. Information can be collected by field workers
also. After the information is collected, it is properly
compiled and arranged and finally a consolidated report
is prepared for the benefit of business firms. For the
information to be purposeful, it is essential that
participating firms should agree about the meaning of
various terms used in ratios and accounting information

The printing industry in UK has played a leading

role in the establishment of uniform costing system
this industry was first to introduce the uniform
costing system.This was a welcome step for
introduction of inter-firm comparison in the printing

17
 industry. The industry awas divided into various
groups each having its own ratios based on
differents characteristic of the firms. The division is
based on the following characteristics:

 Nature of activities carried in the printing industry,

eg, genral printers , book printers,. newspapers
houses, and

 Size determined bu number of employees.

It is to be pointed out here that actual figure sof

profit or other details are not issued to members
so that there is no betraying of confidence.
Emphasis is always laid on depicting the average
results so that a single firm can make a
comparison to see whether its own ratios are
equal, better or worse than the average for its own
particular group. For each ratio the median and
upper and lower quartiles are computed. The
principal ratios used by the principal industry in u.k
are given.

The benefits from inter-firm comparson include the

advantages of uniform costing system and benefits
arising out of the use ratios. The advantages of uniform
costing system has been discussed before.
The following additional advantages are obtained

18
from inter firm comparison:

 The extent of weakness of the participating firms

is reaveled. Management is, therefore induced to
take suitable remedial actions.

 The participating firms give information

voluntarily and willingly in the prescribed
questionare. The definations of various terms are
clearly explained to the users. Thus the results
obtained from the information are accurate and
capable of being compared.

 Inter- firm comparison promotes cost

consciousness among the members of the
industry.

 It enables the government to take measures for

effecting price regulation.

 It facilitates government to grant protection to

industries, wherever necessary.

 It introdues a sense of healthy competition

among the participating firms.

 It provides substantial data to the members-firms

to present their case to government.

19
  It forces ‘self searching’ exercise among the
members-firms.

The benefits arising from inter-firm comparison

have been outlined above. It is very good practice
which promise substantial benefits to the
members of the industry. The practical difficulties
which are often experienced in the

20
implementation of IFC scheme are summarized
below.

 The member-firms often express resistance to

the idea of disclosing data relating to the
performance.

 Satisfaction with the present profits may bring

about a sense of complaceny which is
disastrous for active participation in the
implementation of IFC

 When the companies do not follow suitable

cost acconting system,the inter firm
comparison will not be meaningful and
effective.

 Non availability of suitable basis for

comparison presents problem to the
introduction of IFC.

21
 GOOGLE.COM

 YAHOO.COM

 COST ACCOUNTING BY JAWAHAR LAL

 COST ACCOUTING BY SULTAN & SONS

22
23