Uniform costing

Uniform beUniform being is not a separate or distinct method of damage accounting like job approaching or process costing. It is only a system of cost accounting to be apply by the members of the industry or business deal connecter. It involves adoption of like costing principles, practices and procedures by the undivided members of the industry for inter-firm likeness.The system is made operative by means of Trade Association or Chamber of traffic or some other central agency. Its underlying idea is that whatever costing methods are used, the same should be applied renderly by all the members of the industry. Before a uniform costing system is applied, it is utmost necessary to educate the members more or less the pizzaz 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 industrys prod ucts. 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, brand name 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 monetary standard accounting practice, adopted by different entities in the same industry to facilitate inter-firm likeness.Application Of Uniform cost 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 causal agent, management prescribes a set of forms and procedures for the plant and all the records are insisted 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 dish outful in measuring the operating efficiency of its members. It ensures that cost data submitted by member companies are comparable and consistent. entre of Uniform equaling helps the companies to submit reliable cost data to price fixing bodies, like Bureau of Industrial costs and Prices or other Govt. subdivisions to check forward the average cost and fixing the fair selling prices of variant products.Objectives Of Uniform Costing-To have a reliable cost data for inter-unit or inter-firm similitude of costs.To compare the operational efficiency of individual members against industrys 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 un gain groundable basis.To reveal lines of individual products which have been marketed on an improfitable basis.Member-companies adopt one best method of cost accounting system kn have to the industry. This eliminates unsound method and saves costs required in perfecting systems through expensive experimentation.New companies sight adopt it as a ready-made system. Other companies can adopt the common system for improving their animate 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 be funky 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 grapheme of cost-plus contracts, uniform costing facilitates p reparation of cost sheets on commonly accepted standard principles and practices. Thus, it helps early finalization of cost plus claims.It helps the Chambers of Commerce and Industry to innovate 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 function 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.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 streamlined use of uniform costing system.For smaller unit s, 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.For Successful Application Of Uniform Costing System, The Following Conditions Must Be SatisfiedThe 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 top 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 plentiful and correct information to the Association so the efficiency of the members-companies can be compared.The mem bers should not work with a sense of rivalry and jealousy.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 followsPublication 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. victimization 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 re certifyative cost of products, functions or activities for general information of members.Regular collections and public exposure of cost data under some kind of reporting plan .Complete analysis of cost data to interpret results to show trends, weakness of operation, etc.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 asv verbatim materialv direct labourv cost of direct servicesv 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. discussion of research and development in costs and methods of allocation of research and development to each cost centre/cost unit.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.Me thods of hire of remuneration.Treatment of items like interest on own capital, rent of premises owned, etcMethod of working out depreciation, i.e, whether straight line method or write 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 rating 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.For successful implementation of uniform costing system, it is the primary duty of a Trade Association of devise a cost manual(a) 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 comp anies 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 make better to issue a separate manual for large companies and one for the small.The Characteristics Of A Good Uniform Cost Manual Are Summarized Belowv It should present a strong case for the desirability of using uniform cost accounting methods.v It should serve as a comprehensive reference restrain on cost accounting procedures.v It should be useful to the executives/cost accountants for saving all problems in installation and execution of recommended uniform costing method. mental hospitalStatement of objectives and purpose of the system.Education the management and people about the uniform costing systemScope of the system.Case for use of the system.OrganisationOrganisation for ontogeny and operating the system.Stages in which the system is to be introduced.Management of the organisation by trade association or otherwise.Accounting SystemGeneral 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.Method Of Costing E.G. Process Costing, trick Costing, Standard Costing.Unit of production.Costing periods e.g. monthly, quarterly, half-yearly or annualExpenses 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. Nature and limit of information to be accumulatedInter-firm comparison requires that all relevant and detailed cost information should be hoard regarding business firm. No definite contestation 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 comparisonInformation 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 watery resources.Reserve and appropriation of profits.Debtors and creditors.Methods of production and technical aspects.Inventory and inventory systems. Responsibility for collection, coordination and pres entation of informationIn some countries separate organisations have been established for accumulation and presenting information. in India inter-firm comparison information is collected by 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 informationInformation 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 informationThe printing industry in UK has contend a leading role in the esta blishment of uniform costing system this industry was first to introduce the uniform costing system.This was a encounter step for introduction of inter-firm comparison in the printing industry. The industry awas divided into various groups each having its own ratios base on differents characteristic of the firms. The division is based on the following characteristicsNature of activities carried in the printing industry, eg, genral printers , book printers,. newspapers houses, andSize 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 industr y in u.k are given.The benefits from inter-firm comparson take on 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 from inter firm comparisonThe boundary 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 order 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 brass 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 provi des substantial data to the members-firms to present their case to government.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 go through in the 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 IFCWhen 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. GOOGLE.COM YAHOO.COM COST ACCOUNTING BY JAWAHAR LAL COST ACCOUTING BY SULTAN SONS