Presentation on uniform costing

Presentation on uniform costing
Meaning of Uniform costing
Features
Objective
Advantage and limitations of Uniform costing

1. Presentation on Uniform Costing Presented by: Rachit G upta Vidit Malhotra Harshita Khanna Jatin Goyal

2. Meaning of Uniform Costing It is neither a separate method of cost accounting like specific order costing or operation costing nor a separate technique of costing like marginal costing, standard costing but is only a particular system of costing which takes the help of both methods and techniques of costing. The most important characteristic of uniform costing is that whatever may be the method of ascertaining cost, it is adopted uniformly in a number of undertakings in the same industry or even in different industries. This enables the member undertakings to compile the cost and accounting data on a comparable basis which ultimately may be useful and helpful to the management for taking crucial decisions.

3. CIMA, London Terminology defines uniform costing as  “a common system using agreed concepts, principles and standard accounting practices adopted by different entities in the same industry to ensure that they all deal with accounting information in a like manner, the objective being to facilitate inter-firm comparison.”

4. Features of Uniform Costing a. The same costing principles are applied by all member units for ascertaining cost. b. Cost statements and reports are prepared on a uniform basis. c. The accounting period is common for all member units. d. All the member units adapt the same costing methods, techniques and systems for collection, ascertainment and control of cost.

5. Objectives of Uniform Costing Facilitates Comparison : To facilitate the Comparison of Costs and performances of different units in the same industry. Eliminates Unhealthy Competition : To eliminate unhealthy competition among 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/ regulating prices of the products.

6. 5. Ensures Standardisation : To bring standardisation and uniformity in the operation of participating units. 6. Reduces Cost : To reduce production, administration, selling & distribution costs, and to exercise control on fixed costs.

7. Essential Requisites for the Installation of Uniform Costing A successful style of Uniform Costing has the following requirements: The firms in the industry should be willing to share/ furnish relevant data/ information. A spirit of cooperation and mutual trust should prevail among the participating firms. Mutual Exchange of ideas, methods used, special achievements made, research & know- how etc should be frequent. Bigger firms should take the lead towards sharing their experience & know-how with the smaller firms to enable the latter to improve their performance.

8. 5. Uniformity must be established with regards 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.

9. Advantages of Uniform Costing: 1 . Fixation of Common Price: It avoids cut throat competition among the member units by fixing a common price which is acceptable to all and thus helps in bringing stability of prices of products. Moreover, selling prices of the products are fixed on the basis of reliable data provided by member units using uniform costing. Prices fixed will be acceptable to all and will result in better and cordial relations between the member units. 2. Improving Performance: Several common processes or operations can be standardized and made applicable to several undertakings. It will help in improving the performance of inefficient units. It also enables the member units to use this system as yard-stick of their achievements and performances by comparing costs and profitability of such units. It helps that member units to exchange their ideas and problems and to equip them with current trends and technology.

10. 3 . Inter Unit Comparison of Cost of Production: This is facilitated because a method of uniform costing is followed by several undertakings 4 . Control of Cost: It facilitates in arriving at the cost of production for the industry as a whole which is acceptable to several undertakings in the industry. It also helps to control the cost by eliminating the unprofitable ventures and inefficiencies. There will be better exchange of information among the member units which ultimately leads to reduction in costs and improvement in the quality of the products. 5. Helpful for General Control Over Member Units: It enables the trade associations to have a general control over the member units by way of regulating the production capacity, fixation of selling price and so on . 6. Promoting Standardization: It also helps to determine standardization in the method of production and distribution.

11. 7 . Helpful to the Government in Formulation of Policies and Giving Subsidies: It provides cost structure to the government to enable it to formulate policies relating to wage structure, pricing, import and export and so on. It also furnishes information to the government to get subsidy and other concessions.

12. Limitations of Uniform Costi ng Sometimes it is not possible to adopt uniform methods, standards and procedures of costing in different firms due to differing circumstances in which they operate. Hence, the adoption of uniform costing becomes difficult in such firms. Disclosure of cost information and other data is an essential requirement of a uniform costing system. Many firms do not wish to share such information with their competitors in the same industry. Small firms in an industry believe that uniform costing system is only meant for big and medium size firms, because they cannot afford it.

13. 4. It induces monopolistic tend in the business, due to which prices may be increased artificially and supplies withheld.

14. Fields Covered by Uniform Costing System: The system of uniform costing must be to meet the needs of each individual case as there is no system which may be applied in all circumstances. The purpose of this system will determine the extent of uniformity that should be achieved with respect to various aspects of cost accounting. If the common price is to be fixed under this system, then member units may not be interested in achieving unity in other respects. This may be necessary if comparison of the performance of cost centres is to be made.

15. Uniformity may be required on the following points by the participating members: a. The method and technique of costing to be followed. b. Cost is to be ascertained from cost units or cost centres. c. Definitions of the various elements of costs. d. The basis for cost classification and codification. e. Treatment of purchases, material handling and upkeep expenses for the purpose of determining costs. f. The system of material control. i . The system of classification and codification of accounts. j. Methods of remunerating the workers.

16. k. Methods of accounting of overtime pay, idle time, bonus and other miscellaneous allowances paid to the workers. l. The identification of production and service departments. m. The basis of allocation and apportionment and method of absorption of factory overheads, administration, selling and distribution overheads to the cost of sales. n. The method of valuation of stock and work-in-progress. o. The rates of depreciation to be used in case of fixed assets. p. Method of treatment of interest on capital and notional rent of owned buildings. q. Method of treating waste, scrap, spoilage and defectives costs in cost accounting.

17. r. Treatment of research and development costs. s. The method of treating under a: id over absorption of overheads. t. The method of recording accounting information. Integral or non-integral system of costing to be followed. u. Items to be excluded from the costs. v. Reports and statements for planning and control.

18. Example of Uniform Costing:

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