Uniform costing is a system of cost accounting that is usually used by members of a trade association or an industry. It is not a distinct method of cost accounting like service costing or batch costing. Uniform costing applies to cost principles, procedures and practices for inter-firm comparison that are used by particular members of the industry.
The Trade Association or the Chamber of Commerce or any other central agency makes this system operative. The main aim of using uniform costing is to ensure that similar methods are used across the industry. Educating members of the trade about the system and its principles and procedures is extremely important before implementing a uniform costing system.
Did you know that uniform costing is widely used by some Indian industries that manufacture coal, steel, and fertiliser?
What is Uniform Costing?
Uniform accounting is defined as a system that uses common concepts, standard principles, and accounting practices. This method is commonly adopted by different organisations in the same industry to promote inter-firm comparisons.
Uniform costing is one of the latest methods of costing and cost control and is not a specific method of cost management accounting like marginal costing or ABC analysis. It refers to the approval and compliance of similar costing principles, practices, and procedures by all or many units in the same industry through joint understanding.
Features of Uniform Costing
Uniform costing is a system of standardized application of the concepts of a costing method that is mutually agreed upon. This system is embraced by the vast majority of manufacturers and traders. It is a system that is followed uniformly by multiple players in the same industry to aid comparison and competition.
Some of the features of uniform costing are given below:
All traders in the same industry use the same costing principles and procedures for determining the cost of different units.
Reports and statements of costs are prepared on a uniform basis.
Members of the trade and association use the same costing practices, principles, and techniques for the collection, classification, and control of costs.
The accounting period is the same for all members of the industry.
Advantages of Uniform Costing
Uniform costing is advantageous to various sectors of society.
Some of the advantages of uniform costing for different sectors are given below:
For Members of the Same Industry
Encourages Healthy Competition - It encourages healthy competition among different players in the industry. It removes the issues of rivalry and enmity. This instils a spirit of healthy competition.
Makes firms more cost-conscious - The firms in the industry understand the importance of cost control. This awareness of cost consciousness leads to a decrease in costs.
Helps in the fixation of selling prices - The data on the cost and principles must be collected to decide the selling on a uniform basis. This is done to conform to the requirements of all firms in the industry.
Firms become more efficient - When a uniform costing system is followed by them. Areas of inefficiency are identified and efforts are made to improve the efficiency of such areas.
It acts as a measurement of profitability - When uniform costing has been implemented unprofitable areas are disclosed and areas that operate below the levels that are incurring losses are known. As a result, uniform costing aids in detecting profitability.
Beneficial to weaker members of the industry- Those players in the industry who are not aware of the expertise and knowledge of various units and products receive it from others. Research and development divisions of larger companies provide useful information for smaller companies.
Saves economies of cost - The members can appoint an expert or consultant on costing to shore joint costs on a uniform basis. It saves economies of cost as they are jointly consulting a cost expert instead of doing it individually.
For the Government
Governments can facilitate comparisons and check the efficiency of the public and private sectors and implement various policies for improving them.
It helps the government collect data on profits. It also classifies and fixes wages as minimum and fair as per the Minimum Wages Act or the Wage Boards.
Through several trade associations, the government has easy access to cost data and can decide on subsidies, grants licenses, etc.
The government can also control prices and check the validity of the uniform prices that have been fixed by trade associations. If necessary, it can also set up a system of control.
For the Parent Organisation
If the members of the industry are under the same ownership and control by a holding company, in this case, the members and the parent company can follow uniform costing and use it to their benefit in the ways given below:
Uniform costing can improve sales on both the domestic and international fronts.
Problems of members or firms can be represented to the Government in a better and more accessible manner. This is because the data regarding the costs of all the member firms are uniform. This is also helpful when the member is trying to acquire a subsidy or a grant or any license.
Employees will receive better wages and be rewarded with different allowances and perks, such as bonuses. This will be immensely beneficial.
By implementing uniform costing, employers can reward their workers in a more satisfactory manner. This reduces labour turnover and also improves the working environment of the workers and improves the earnings of both the workers and the companies.
Workers also benefit from non-monetary perks.
Scope of Uniform Costing
A degree of uniformity in costing is a necessity in particular industries as the scenario of industrial development has changed over the years. Various companies have combined and better working arrangements have been established by different manufacturers in certain specific industries. Therefore, uniform costing is a requirement for better organisation.
How Can Organisations Benefit from Uniform Costing?
Organisations that have numerous branches can benefit from uniform costing. The organisation may have branches of different manufacturing units or divisions in the same industry. They may sometimes be associated through a trade association for industries such as the printing press, sugar, plastic, hotels, gas, cement, electricity, jute, road transport, woollen textiles, and cotton. They could have similar procedures and modes of operation. All their different units could be functioning for different purposes but will be under the same ownership and control.
Uniform costing is a necessity in various industries such as the coal industry, fertilizer industry, cement industry, and several others. It facilitates a standard method of costing. This is best used in distinct industries for inter-firm comparisons of different costs. Uniform costing is also beneficial for organisations that have numerous branches all over the world. These organisations are either part of the same industry or are bound together by various trade associations. It has many advantages such as cost consciousness, better cost control, promoting healthy competition, and improved efficiency.
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