Uniform costing

Uniform costing is a financial practice that uses standardization to create comparisons cross an industry or among the branches of large business. Uniform costing insures that everyone uses the same methods report financials. The most common industry required uniform costing are public and industry that involves trade association or reserve federals subsidies. This system is based on the authorization of identical methods, principles that facilitate calculations. They are important for efficiency as well as proper, and relevant comparisons existing between companies .If the system would not been standardized, it would cause many complications regarding the analysis of overheads and other relevant issues.

Goals of Uniform costing

Relatively every innovative method serves to improve the system, to support its effectiveness and the development of individual fields. The most important aspects: Why using uniform costing, brings benefits:

• Firstly Facilitation of comparative combinations - Certainly, the main feature is to facilitate the comparison of performance costs that have different units in the same industry. It is an objective assessment
• It gets rid of unhealthy unfair competition - Unification of the system eliminates conflicts between individuals in the industry.
• It affects that the efficiency increase - The level of production capacity and work efficiency is compared to production costs of different units.
• The database is orderly-The Government to set the products’ prices needs reliable information on the cost of shares.
• Provides standardization-to ensure standardization and get rid of the diversity, in the effects of the participating units.
• It affects positively in reducing of costs-To decrease costs of distribution, selling, production, administration, and constant control of fixed costs.

Advantages of Uniform costing

The main advantage of costing systems is an achievement a higher level of operational efficiency through a consistent understanding of costs and competition. It results from the statement of costs of accepting real prices, relating to pricing policies, and establishing the best methods for creating cost calculations.Advantages of uniform costing is dissccused under different headings. These are the mains desirabilities:

• This system is based primarily on mutual communication, which leads to some calculations arise. This allows to overcome difficulties and implement its.
• Costs are controlled by the weaknesses and strengths of the enterprise. Comparison of data with other companies allows determining these features.
• Using experience resulting from other problems of different companies determines the achievement of optimal efficiency.
• The development in the industry of each company will be known resulting from a comparison of costs with other companies
• Every company can use the service of experienced experts and cost consultants to avoid failures. Also smaller companies will be having the chance to take advantage of the research, development and information about larger companies.
• The trade association will be supported in negotiations with the Government on topics such as tax concessions, subsidies, customs, and grants.
• Prices are reliable, because they are fixed on the basis of uniform costs. They are representative of the entire industry.
• Uniform costs are the bassist form for the comparing two companies, which are existing in the same industry but different sections.

Range of Uniform cost

The combination and stricter working arrangements between producer groups in different industries required some level of uniform costs by industries to some extent. Uniform costing can be advantageously used in an organization with many branches, each of which can be a separate production unit or in many units in the same industry related to each, other through a trade association or otherwise, or in similar industries, where they are in different states and have in common operations and procedures or companies with a certain number of bets and are subject to one ownership. In some companies, the operation of uniform costs is a subject controlled by the head office assessment, but in other cases companies from the same industry are associated with each other by a trade association to unify the cost system. It makes access to information easier for everyone, what is included in the cost and what should be done to achieve it. The need to establish uniform costs in enterprises connected with a standard data collection operation, the aim of which is to determine the cost of sales or the optimum accepted by everyone in the industry.

Examples of Uniform costing

1. The hospitality industry often uses uniform costing for comparison and analysis across different branches of hotels, restaurants, and resorts. For example, a hotel chain may use uniform costing to compare the cost of materials for building a new hotel across different locations, or to compare the cost of providing customer services across different hotel chains.
2. Uniform costing can also be used in other industries, such as retail. For example, a large retail chain may use uniform costing to compare the cost of purchasing merchandise across different stores, or to analyze the cost of providing customer service across different retail chains.
3. Uniform costing is also commonly used in manufacturing. For example, a manufacturing company may use uniform costing to compare the cost of producing a product across different factories, or to compare the cost of supplying raw materials across different suppliers.

Limitations of Uniform costing

Uniform costing is a financial practice that uses standardization to create comparisons cross an industry or among the branches of large business. However, there are several limitations to this practice. These include:

• Variations in cost structures across companies: Uniform costing assumes that all companies have the same cost structure, however this is not always the case. Companies in different industries or with different business models may have very different cost structures, making comparisons difficult.
• Inaccurate cost data: Cost data used in uniform costing may be inaccurate or incomplete, leading to incorrect comparisons.
• Ignores Economic Conditions: Uniform costing ignores economic conditions, such as changes in demand, exchange rates, and other economic factors that can have an impact on costs.
• Potential for Abuse: Uniform costing may lead to manipulation of data in order to make a company look more competitive than it actually is.

Other approaches related to Uniform costing

Uniform costing is a financial practice that uses standardization to create comparisons cross an industry or among the branches of large business. Other approaches related to Uniform costing include:

• Activity-based costing: This approach looks at the costs associated with specific activities, such as the costs of production or the costs associated with selling a product.
• Target costing: This approach determines the target cost of a product before production begins and works backward to determine the cost of production.
• Marginal costing: This approach looks at the costs associated with producing one additional unit of a product.
• Process costing: This approach looks at the costs associated with each step in a process, such as the costs of materials and labor.

In summary, Uniform costing is a financial practice that uses standardization to create comparisons across an industry or among the branches of large business. Other approaches related to Uniform costing include Activity-based costing, Target costing, Marginal costing, and Process costing.

Uniform costing — recommended articles

Cost calculation — Benchmarking — Costing system — International division of labor — ABC method — Target cost — Measurement of innovation — Principles of Supply Chain Management — Internationalization

References

• Board of Studies The Institute India (2011), Advance Management Accounting, (Final Course Study Material),The Institute India.: Advance Management Accounting, Vol.I (chapter 9).
• Georgiev D.(2016), Accounting Applying Of The Uniform System Of Accounts For The Lodging Industry (USALI) For The Purposes Of Financial And Management Accounting (p.154-160).
• Lederer P.J., Simon W.E. (2011), Uniform Spatial Pricing.

Footnotes

Author: Daria Maniak