This is 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 similar manner so as to facilitate inter-firm comparison.
The objectives of uniform costing are:
- To promote uniformity of costing methods, so that valid costs comparisons can be made between similar organization
- To eliminate inefficiencies and promote good practice revealed by the cost comparison.
- Serve as a basis for government subsidies or grants which weed similar costing systems to ensure equitable distribution.
- Serve as a basis for competitive bidding.
Requirements of Uniform Costing
Uniform costing systems should process the following features:
- Cost statements and reports should be organized and laid out in a similar format so that each element of cost and revenue can be compared quite easily.
- Accounting periods must be the same in all firms in the industry.
- The methods of valuing stocks and work in progress must be the same.
- The basis of valuing fixed assets must be the same.
- The method and actual rates of depreciation for each type of asset must be the same.
- The basis of cost or overhead apportionment and absorption must be similar.
- Cost classification systems must be the same in all the firms in the industry so that similar items are classified in the same names.
Advantages of Uniform Costing
- It enables costs to be compared easily
- It makes it easier to computerize the accounting system of various organizations in the industry.
- It leads to easier cost transferability between organizations.
- It may not be appropriate or suitable to an individual organization in the industry if there is a difference in size and structure.
- It is slow to adopt to changing conditions and demands.
Other Costing Methods
- Unit Costing
- Service Costing
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