TABLE OF CONTENTS
CHAPTER No TOPIC Page no
2. APPLICATION OF UNIFORM COSTING SCOPE
2.2 REQUISITIES OF UNIFORM COSTING
2.3 KEY FACTOR
CHAPTER 3 3. UNIFORM COST MANUAL
3.2 DIFFICULTIES IN UNIFORM COSTING
3.3ADVANTAGES IN UNIFORM COSTING
3.4LILMITATIONS IN UNIFORM COSTING
4. AREAS OF UNIFORMITY
4.1Points on which Uniformity is essential before introducing
Uniform costing is the application of the same accounting and costing principles, methods or
procedures uniformly by various undertakings in the same industry. It is a particular technique
which applies the usual accounting methods like standard costing, marginal costing, and
Uniform Costing: It is not a distinct method of costing when several undertakings start using the
same costing principles or practices, they are said to be following uniform costing. 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 and helps in mutual cost
control and cost reduction. Hence, it is recommended that a uniform method of costing should be
adopted by the member units of an industry
Different types of costing principles and the practices are used by different industries to suit their
requirements. However, for comparing the achievements, costs, targets, profitability etc, within
the firms, it is essential that same set of principles and practices are adopted by all the firms
within an industry.
The use by several undertakings of the same costing principles and/or practices is called as
uniform costing. It is usually expected in case of a uniform costing system that all firms within
an industry include the same items in cost, apply similar methods of distribution of overheads,
adopt the same items in cost, apply similar methods of distribution of overheads, adopt the same
general classification of accounts, install similar forms and procedures, and present similar
The service departments and producing departments are classified on the same pattern in all the
firms. The policy regarding the treatment of overhead items is also fixed in general.
Uniform costing is neither a costing method like job or process costing nor it is a costing
technique like standard costing or marginal costing but a particular system which may combine
any of the costing methods and any one or more techniques of costing.
The question of the application of uniform costing arises only when two or more units want to
follow the same costing practices. These units should be engaged in the same activity. They may
be owned or managed by one group or different groups. For example, a number of sugar mills
owned or managed by one group may adopt a uniform costing system or different companies
engaged in sugar industry may, through a common representative association, agree to follow a
uniform costing pattern. The working of the system in the former case will be simpler as
compared to the latter. This is because in the latter case the units are not under the same
management and therefore the arrangement is purely voluntary
Uniform Costing is not a distinct method of costing, Infact when several undertaking 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.
MEANING OF UNIFORM COSTING
Uniform costing is not a method of costing like marginal costing or ABC. But it is good costing
system to operate a business in which all the companies in any industry follow the same type of
costing principles and methods. For example, we talk about electrical industry. Bajaj
International Private Ltd, Bharat Heavy Electricals Limited (BHEL), Centre for Electronics
Design and Technology and Crompton Greaves Limited (CGL)are the main electrical
companies. If these companies join and make a costing system in which they will use same
costing methods and techniques, then it will be said that these are following uniform costing.
With this, these companies reduce unhealthy competition.
Cost accounting is a process of collecting, analyzing, summarizing and evaluating various
alternative courses of action. Its goal is to advise the management on the most appropriate course
of action based on the cost efficiency and capability. Cost accounting provides the detailed cost
information that management needs to control current operations and plan for the future.
Since managers are making decisions only for their own organization, there is no need for the
information to be comparable to similar information from other organizations. Instead,
information must be relevant for a particular environment. Cost accounting information is
commonly used in financial accounting information, but its primary function is for use by
managers to facilitate making decisions.
Unlike the accounting systems that help in the preparation of financial reports periodically, the
cost accounting systems and reports are not subject to rules and standards like the Generally
Accepted Accounting Principles(GAAP). As a result, there is wide variety in the cost accounting
systems of the different companies and sometimes even in different parts of the same company
Uniform costing is not a particular method of costing. It is adoption of common accounting
principles and in some cases common methods by member companies in the same industry so
that their cost figures may be comparable. Uniform costing can be defined as the ‘use by several
undertakings of the same costing principle and practices’.
In other words, it is a technique or method of costing by which different firms of a field or
industry apply similar costing system so as to produce cost data which have maximum
comparability. Standard costs may be developed and cost-control is secured in firm through
Relative efficiency and inefficiencies in production may be identified and suitable steps may be
suggested to control and reduce the cost. The objectives of uniform costing are to standardize
accounting methods and to assist in determining suitable prices of products of firms which adopt
Thus objects of a uniform costing systemare:
(a) It provides reliable data for making inter-unit comparisons of cost performances.
(b) It helps to arrive at the cost of production for the industry as a whole on a common basis
acceptable to all individual units or firm of the industry.
(c) It provides data to compare the cost of production and the production efficiencies between
one firm and others.
(d) It ensures that the product prices are based on authentic costing data.
a. Facilitates Comparison
b. Eliminates Unhealthy Competition
c. Improves Efficiency
d. Provides Relevant Data
e. Ensures Standardisation
f. Reduces Cost
The techniques of uniform costing may be introduced with one or more of
the following objectives:
1. To avoid competition: It eliminates cut-throat competition by fixing
common prices on the basis of uniform costing procedures. It thus also aims
at bringing stability in prices of the products.
2. Costcomparison: It enables different firms to compare the costs because
the costs are based on same principles. Thus, their profitability can also be
3. Measurementof efficiency: Comparison of costs and profitability helps
in measurement of efficiency. Uniform costing enables the member
participants to use this system as yardstick of their achievements and
4. Reliable prices: The confidence is reposed in the public where the prices
fixed are based on sound and uniform costing principles. This will result in
better and cordial relations between members adopting this system and their
5. Costcontrol: One of the objectives of uniform costing is an effective
control over costs. This facilitates location of unprofitable ventures.
Uneconomies and inefficiencies are revealed at every stage. The uniform
cost serves as the standard costand helps in controlling the off-standard
6. Betterexchange of information: Members having technical knowledge
provide the benefit of their experience to others. Free exchange of
information leads to reduction in costs and improvement in the quality of the
Application of Uniform Costing (Scope):
Uniform costing may be applied in two different situations.
(a) Common Control and Management:
Uniform costing may be applied when number of units or firm producing similar goods and
services are under a common control or controlled by the same group of management.
(b) Trade Associations:
Uniform costing may be adopted by firms or units which are related to a trade association.
Different firm may form an association through which they may adopt common costing method
Even though cost accounting is commonly referred to as a costing method, the scope of cost
accounting is broader than just costing. In cost accounting, there are elements of traditional
bookkeeping, system development, creating measurable information and input analysis.
Modern methods of cost accounting were first prevalent in the manufacturing industries, though
its advantages helped it spread to other sectors quickly. For many firms, cost accounting helps
create and measure business strategy in a symbiotic, endogenous way.
Financial accounting and cost accounting systems can be differentiated based on their respective
target audiences. Financial accounting is designed to help those who don't have access to inside
business information, such as shareholders, lenders and regulators – the consumers who analyze
financial statements. Alternatively, cost accounting is meant for those who are inside the
organization and are responsible for making critical decisions.
There is no legal requirement for cost accounting (unlike financial accounting for publicly traded
firms); companies use it because it's highly advantageous to do so. It's much easier for a business
to know how to use its resources better when it can track them, measure them and study their
effects. This is what cost accounting provides.
Requisites of Uniform Costing:
Uniform costing can be adopted if certain pre-conditions exists. The success of a uniform
costing system depends primarily on the cooperation extended by different units or firm
towards the working of the system. Every unit should agree to supply required accounting and
costing information without reservation to a central body formed by them for implementation
of the uniform costing scheme. This body has to correlate, analyze and consolidate the
information received from the different units.
Following are pre-requisites of uniformcosting:
(a) Firms or units adopting uniform costing must be ready to provide and share accounting and
costing information freely.
(b) They should adopt a common system of costing regarding classification, distribution and
absorption of costs. They must agree on a common technique of costing e.g., absorption
costing, standard costing or marginal costing.
(c) The firms must use a common terminology and procedure for cost ascertainment and cost
(d) There should not be any restriction from the Government in adopting uniform costing.
(e) A central body or proper organisation must be set up for preparing comparative statistics for
the use of member units participating in the uniform costing.
(f) Above all, the most important is that units or firms must have mutual trust, confidence and
The essential requisites for the installation of uniform costing system
A successful system of uniform costing requires the following essential requisites for its
1. The firms in the industry should be willing to share /furnish relevant data /information.
2. A spirit of co-operation 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.
The success of uniform costing depends on certain key factors which would be peculiar to each
unit. These factors are uniformity in method of production, the size of organisation and
accounting method. The Method of Production of units should be uniform. Besides similarity in
output, the types of machinery used should be identical. The difference in the type of
machinery used will create variation in the efficiency and therefore in costs.
There may be some other varying factors in production. Unless these factors are leveled out by
giving weight-age on an equitable basis the object of uniform costing will not by served. The
Size of Organisation of participating units should not be different. If production capacities of
units are widely different, they cannot follow the same principles and practices.
The Accounting Method of different member units should be identical. If the accounting
method is different, the information needed for uniform costing may not be available within
reasonable time and frequency without unnecessary delay.
The essential feature of Uniform Costing is adoption of standardised principles and methods of
cost accounting by different units introducing the method.
The standardisation may extend tofollowing:
1. Method of Cost Accounting e.g., job costing, process costing or a variation of one or both of
2. Accounting classification including coding.
3. Content of each account.
Methods of defining costs:
(a) Direct material
(b) Direct labour
(c) Direct expenses
(d) Overhead costs regarding factory, selling, distribution, administration, research and
5. Methods of recovering depreciation.
6. Methods of allocating and/or apportioning overheads costs to cost centres and jobs or
7. Material control including the pricing of issue and valuation of stocks.
8. Methods of recording accounting data e.g., integrated accounting system.
9. Reports and statements for planning and control.
10. System of remunerating labour e.g., time rate or piece rates.
11. A Central Body should be established for carrying out the work of uniform costing.
The standardisation should be achieved by developing a ‘ Uniform Costing Manual’
It is a written document, which may be in the form of a booklet or
bulletin, containing the principles, methods and procedures for the ascertainment and control
of cost in uniform costing. It is necessary for the successful operation of uniform costing
system. Such a manual provide guidelines to the participating firms to organise their cost
accounting system on a uniform basis. Uniform cost manual is a document which lays down the
general accounting principles, methods and procedures for the ascertainment and control of cost.
The circulations of this manual provide the guidelines to the organisation to formulate their
system of accounting in such a way that the principles of uniform costing can be uniformly and
The following are the salient features of a uniform costmanual.
1. It includes statement of objectives and purposeof the system, scopeofthe
advantages and extent of co-operation necessary.
2. It contains the general principles of accounting, nature coding, terminology to be
followed, classification and description of accounts. This section also includes
stockcontrol, labour and overhead costcollection and control.
3. Essential costdata and various ratios to be computed for comparison of
and efficiency in the operation of the participating units.
4. Mode, format and time for presenting costdata and reports to the management.
5. It provides necessary guidelines about the treatment of depreciation, interest on
wastage, scrap, by-product, etc.
Following are the contents of Uniform costmanual:
- CostAccounting System
- Presentation of Information
Difficulties, Advantages and Limitations!
The introduction of Uniform Costing systemfaces a number of difficulties since the cost
structure of participating units or firm may vary due to following factors:
1. Difference in Size of the Firm and the Organization Structure:
The difference in the size of firms will result in difference in the division of work and process of
output. Larger firms may have more division of work than that of smaller firms in the same
process. The number of departments and supporting services will be more in a large firm than the
smaller ones and this will result in higher overhead cost. Moreover, a large size firm can achieve
economies of bulk purchase which will not be available to the small firm.
2. Difference in Technology:
There may be difference in the technology used by member firms. Firms using more
sophisticated plant may lead to greater division of work into process. Their nature and sequence
of work will also differ from firms adopting less sophisticated technology.
3. Difference in Range of Products:
A firm may produce only a few varieties of products whereas the other may produce large
number of varieties of products. The firm producing large variety will be in advantageous
position with regard to distribution of overheads.
4. Difference is the Level of Productivity and Efficiency:
Levels of efficiency and productivity may vary from firm to firm depending upon skilled and
experienced personnel, their tracing, supervisor, motivation and cooperation of trade union.
5. Difference in Managerial Planning and Growth Rates:
There may be different growth rates of the member firms. With the result, the planning of each
firm may be different in terms of costing and pricing while uniform costing requires common
6. Difference in Costing Methods and Principles:
There may be difference in costing principle and procedure adopted by member firms. For
example, a firm may recover overheads on the basis of direct wages whereas another may
recover overheads on labour hour rate or machine hour rate which may result dissimilarity in
costs of the same type of product. Uniform costing depends upon elimination of such differences.
These differences can be eliminated by application of common principles and procedure by
7. Difference in Geographical Situation:
In a big country regional difference create difference in cost structure of different firms. There
may be availability of cheap labour, nearness to raw material, advantage of market and
favourable climate to some firms. Many states may offer concessions in power rates, interest
rates, tax rates. All these factors will create difference in the cost structure. These require
reconciliation before implementation of costing structure.
Advantages of Uniform Costing:
In brief, the advantage of uniform costing system are achievement of greater operating efficiency
through common understanding of cost and a competitive spirit introduced by comparison of
cost, adoption of realistic pricing policies and establishment of the best methods and principles
Uniform costing refers to the use of the same costing principles and practices by several
undertakings. These undertakings may or may not be under the same management.
Adherence to the same costing methods and procedures specially when there can be two or
more options is the characteristic feature of a uniform system of costing.
The following are various advantages of uniform cost accounting system:
1. Uniform costing helps member firms to adopt one of the best methods of cost accounting
system known to the industry. This eliminates unsound methods and also saves cost required in
perfecting systems through expensive trial and error or experimentation.
2. Uniform costing tends to convince the member firms for adoption of method used by the
3. Uniform costing develops better informed and healthy competition within the industry which
results in control and reduction of cost.
4. Uniform costing provides the members with all benefits of sound costing system. On the basis
of available reliable cost information, product pricing is taken up on sound basis.
It checks unhealthy competition and price-cutting below costs. Moreover report is provided for
comparison of major cost items with predetermined standard costs. It helps in controlling costs
and increasing operating efficiency. The system also provides information which guide to the
performance and efficiency of labour, machine and methods.
5. Uniform costing system reveals unprofitable products or product lines and provides valuable
information to strengthen them.
6. Uniform costing also creates confidence in the customers that prices have been fixed with
reliable data of costs.
7. Uniform costing enables regulatory bodies and government to collect required data relating to
Thus uniform costing is a useful tool for managerial control, performance appraisal and
standardization of operation in the industry. It avoid cut-throat competition. Weaker member
units can avail advantage of the efficient methods of production, cost control and the research
and development in the field.
For members units
(a) Fixation of selling prices: Accumulation of cost data on sound principles helps in determining
selling on a uniform basis to suit the requirements of all the participating firms.
(b) Healthy competition: Removal of rivalries and enmities inculcates a spirit of healthy competition.
(c) Improvement in efficiency: Areas of inefficiencies or Uneconomies are located out and thus
efforts for improving efficiency can be made.
(d) Cost consciousness: The member-firms realize the importance of controlling costs. This feeling
of cost consciousness brings reduction in costs.
(e) Benefit to weaker units: Those participants who do not have expert knowledge of products can
gain it from others. Research and development division of large concerns provides useful information
to small concerns.
(f) Management control: Cost comparison helps the management in knowing the points of their
weaknesses and thus enables them to exercise better control over the operations of the business.
(g) Profitability measurement: Unprofitable ventures are disclosed, the levels below which the firm
shall operate at a loss are known. Thus, uniform costing serves as an insurer of profits.
(h) Economy: The concerns can appoint a cost expert or consultant jointly and share such costs on a
common basis. Thus, it economises the cost of obtaining expert’s advice about costs.
The management of each firm will be saved from the exercise of developing and
introducing a costing system of its own.
A costing system devised by mutual consultation and after considering the difficulties
and circumstances prevailing in different firms is readily adopted and successfully
It facilitates comparison of cost figures of various firms to enable the firms to identify
their weak and strong points besides controlling costs.
Optimum achievement of efficiency is attempted by all the firms by utilising the
experience of other concerns in the industry.
Standing in the industry of each firm will be known by making a comparison of its cost
data with others.
Services of cost consultants or experts may be available jointly to each firm in the
industry by sharing their experiences and expenses.
Research and development benefits of bigger firms may be made available to smaller
It helps in the reduction of labour turnover, as a uniform wage system is the precondition
of a uniform costing system.
It helps Trade Associations in negotiating with the Government for any assistance or
concession in the matters of taxation, exports, subsidies, duties and prices determination
(i) The management of an individual firm / unit will be saved of the botheration of
and introducing a costing system of their own.
(ii) A uniform costing system for the firms in the same industry is provided for the
such undertakings. Since the system is devised by manual consultation and after
considering the difficulties and circumstances prevailing in the various undertakings,
therefore it is readily adopted and successfully implemented.
(iii) It facilitates comparison of cost figures of various firms. Such a comparison enables
firms to identify their weak and strong points and control costs effectively and efficiently.
(iv) The availability of cost data of other firms in the industry enables each firm to know
standing in the industry.
(v) The benefits of research and development of bigger firms are made available to
firms at no cost.
(vi) This system of costing requires the introduction of a uniform wage system in all the
in the industry. The introduction of a uniform wage system reduces labour turnover.
(vii) It helps trade associations in negotiating with the government in trade matters,
particularly, when an industry seeks any assistance or concession from the government
in matters of subsidies, exports, taxation, duties and price determination, etc.
(viii) Uniform costing is of great help in price fixation. Unhealthy competition is avoided
between the firms in the same industry in framing policies and submitting tenders.
(ix) It helps the government also in regulating the prices of essential and important items
such as bread, flour, sugar, cement and steel etc.
Limitations and Disadvantages ofUniform Costing:
Uniform costing is sometimes opposed due to a number of problems and difficulties.
Standardization of definition and method is the key factor of uniform costing but it is difficult to
accomplish. Moreover if standardization is achieved, there is great difficulty in fitting the
method into the framework of each individual business because many differences exist such as
age of plant, geographical location, availability of labour etc. How can a firm working with
manual labour be compared with a highly mechanized firm?
Following points may be noted as limitations of the method:
(1) The arguments generally advanced against the use of a uniform costing systemare:
(a) Sharing of confidential data with other competitors in the industry;
(b) Accounting inconveniences arising out of each individual unit having own principle and
practice which may be different
(c) The limited advantages which an unit can derive from the scheme.
From the standpoint of the society, the disadvantage of uniform costing is formation of trade
association by firm’s just too restraining trade and impending competition.Uniform costing
generally creates conditions which develop monopolistic tendencies under trade association.
These associations may raise prices arbitrarily.
The practises and methods followed by various units in the industry vary from one unit to
- Cost of installation and operation of uniform costing system are high for small units thus they
cannot afford it.
- If any reservation is made while giving certain information then the statistics presented cannot
be relied upon.
- It may create situations which may lead to monopolistic tendencies resulting in higher prises
and curtailed supplies.
(i) Due to the differing circumstances in which firms operate, it is difficult to have uniform
standards, methods and procedures of costing. This renders the adoption of uniform
(ii) Adoption of a uniform costing system requires various firms to disclose their cost and
other data. Some of the firms do not like this and are thus hesitant towards the use of
this costing system.
(iii) Small firms feels that uniform costing system is meant only for large and medium size
firms and thus they cannot afford it.
(iv) Some feels that the use of this system of costing may lead to monopolistic tendencies
resulting in artificially raised higher prices and curtailing supplies
The following are the areas where uniform costing canbe implemented:
In method of pricing the issues
In method of costaccounting
In costing techniques
In methods which are used for valuation of inventories.
Methods of remunerating workers.
Methods used for inventory control
Methods used for valuation of inventories
Methods used for charging depreciation
Methods for apportionment and absorptionof overheads
Treatment given to research and development costs, material scrap, wastes and
AREAS OF UNIFORMITY
Uniformity in the size of varations units where uniform costing is to be introduced:
The size of units which are to be brought under uniform costing should more or less the same
units differing in size should be classified in a number of categories according to their size
Since the cost structure in an organization is influenced by its size the classification of units
based on their size would make the cost statements of these units more comparable
Uniform in the production method
All units in an industry should use uniform methods of production
Uniformity in the according method principles and procedures:
IDENTIFYING STAGES OF PRODUCTION WHERE COSTS ARE TO BE MEASURED.
CLASSIFICATION OF COST AND ITS COMPONENTS.
METHODS OF DEPRECIATION.
TREATMENT OF NOTIONAL EXPENSES.
IDENTIFYING METHODS OF PRICING MATERIALS ISSUES.
BASIS OF DISTRIBUTION AND REDISTRIBUTION OVERHEADS.
Points on which Uniformity is essential before introducing UniformCosting
The points in respect of which uniformity is required to be established before the
introduction of uniform costing in an industry are as below:
(i) Uniformity in the size of various units where uniform costing is to be introduced:
The size of units should be more or less the same which are to be brought under uniform
costing. Units differing in size should be classified in a number of categories according to their
size. Since the cost structure in an organisation is influenced by its size, the classification of
units based on their size would make the cost statements of these units more comparable.
(ii) Uniformity in the production method:
All units in an industry should use uniform methods of production.
(iii) Uniformity in the accounting method, principles and procedures:
In fact, the uniformity should be achieved in respect of following:
Identifying stages of production where costs are to be measured.
Same methods of valuing inventory should be used
Methods of remunerating and providing incentives to labour.
Basis of allocation and apportionment of overheads..
Treatment of material losses.
Allocation / apportionment of joint costs.
Preparation of cost statements, reports and their submission schedule.
Uniform Costing is not a distinct method of costing, Infact when several
undertaking startusing the same costing principles and / or practices, they
are said to be following uniformcost ing.
The basic idea behind uniform costing is that the different concerns in an
industryshould adopt a common method of costing and apply uniformly the
same principles andtechniques for better cost comparison and common
The principles and methods of compilation, analysis, apportionment and
absorption of overheads differ from one concern tothe other in the same industry,
but if a common or uniform pattern is adopted by all, it helpsmutually in cost
control and cost reduction
1. M. Com Part 1 Manan Prakashan Publications Advanced Cost Accounting by