Uniform Costing: Meaning and Requisites | Cost Accounting

In this article we will discuss about:- 1. Meaning and Definition of Uniform Costing 2. Requisites for Installation of Uniform Costing 3. Uniform Cost Manual 4. Benefits 5. Limitations.

Meaning and Definition of Uniform Costing:

CIMA defines Uniform Costing as “the use by several undertakings of the same costing principles and/or practices”.


Uniform costing is not a new concept or method of Cost Accounting. The essential feature of uniform costing is that standardized principles and methods of Cost Accounting are employed by a number of different companies and firms. When different undertakings in the same industry or in different industries adopted one set of standard accepted Cost Accounting principles, it is said to be uniform costing is followed.

It is introduced to standardize Cost Accounting methods and practices to assist in determination of product prices. One of the important aims of uniform costing is to facilitate inter-firm comparisons.

The important objectives of uniform costing are maintenance of reliable cost data for inter-firm comparison, comparison of operational efficiency of individual concerns within the industry and to assist in fixation of common selling price for the industry as a whole.

Requisites for Installation of Uniform Costing:

The uniform costing system can be successfully installed by considering the following:

(a) The uniform costing can be implemented easily among undertakings manufacturing similar products or operating similar operations.

(b) The firms in the industry should be willing to share/furnish relevant data/information with other firms in the industry.


(c) Mutual trust and cooperation is the basic tenet of uniform costing.

(d) Uniform costing system using common concepts, principles and standard accounting practices adopted by different entities in the same industry to facilitate inter-firm compari­sons.

(e) Big firms should take lead towards sharing their experience and know-how with small firms in the industry. This will enable to improve performance of small firms.

(f) The trade association and its members should adopt a document called ‘uniform cost manual’, which provides for standardization of procedures.


(g) The management of different concerns should be convinced of the benefit that can be reaped by the individual firms and the total industry on implementation of uniform costing.

(h) Uniformity must be established with regard to several points before the introduction of uniform costing in an industry.

Uniform Cost Manual:

It is a document in writing adopted by the trade association or by the undertakings following the uniform costing. It contains the principles, methods and procedures for the ascertainment and control of cost and assessment of profitability and revenues. This manual is important for successful installation and operation of uniform costing.

It provides the guidelines for standard­ization of the following procedures to be adopted by the individual concerns for introducing the uniform costing system:


(a) Statement of objectives and purpose of the system, advantages and extent of cooperation necessary.

(b) Essential cost data and various ratios to be computed for comparison of performance and efficiency in the operation of participating units.

(c) Method of Cost Accounting e.g., Job costing, Process costing or a variation of one or both of these.

(d) Accounting classification including codes.

(e) Contents of each account.

(f) Definition of direct and indirect costs, overheads.

(g) Methods of recovering depreciation.

(h) Methods of allocating and/or appropriating overhead costs to cost centres and jobs products by applying machine hour rate, labour hour rate, percentage of direct material, direct labour, prime cost, works cost etc.

(i) Methods of recording accounting data e.g., Integrated Accounting System.

(j) Systems of remunerating labour e.g., Time rate, Piece rate etc.

(k) Classification of production and service departments.

(l) Pricing method of stores issues e.g., FIFO, LIFO, Average cost etc.

(m) Method of valuation of WIP e.g., Prime cost, Factory cost, Marginal cost etc.

(n) Unit of cost e.g., tonne, kg, dozen, litre, etc.

(o) Costing technique to be used: actual, standard or marginal.

(p) Adoption of similar classification of accounts and form of statements and reports for accounting, planning and control.

(q) Segregation of direct and indirect materials, direct and indirect wages etc.

(r) Mode of dealing with the special expenditure items like:

i. Interest on capital

ii. Finance charges

iii. Research and development cost

iv. Advertisement expenditure

v. Stores and material handling expenses

vi. Depreciation

vii. Notional rent

viii. Directors remuneration

ix. Overtime and holiday pay

x. Rates of apportionment of service centres cost to production centres etc.

xi. Wastage, scrap and by-products

(s) A central body, such as a trade association, is established for carrying out the work of the above.

When Uniform Costing is to be adopted, it is important that a careful study should be made of conditions in the industry, to ensure that the various operations are comparable.

Benefits of Uniform Costing:

For introduction of uniform costing in an industry, first of all, the top managements of the different concerns in the industry should understand the benefits that can be reaped by the individual firms and the total industry on implementation of the uniform costing.

The benefits which may accrue to the participating concerns from the use of uniform cost accounting are as follows:

(a) It helps the firms to submit reliable cost data to price fixing bodies to determine the average cost and fixing the fair selling price of various products. It facilitates realistic pricing policies.

(b) It facilitates cost comparison among different concerns producing same products and enable each concern to measure its own efficiency with its competitors.

(c) Greater ease in operating can be achieved by thorough understanding of costs and competitive spirit inculcated in the industry.

(d) It facilitates improvement in labour, machinery and production methods and techniques.

(e) It leads to increased productivity and reduced cost per unit.

(f) Best methods and principles of costing are followed in the industry.

(g) It serves as a basis for government in framing the policies in pricing of products, fixing of tariffs, granting of subsidies and incentives, policies of equitable distribution etc.

(h) It serves as a prerequisite to Cost Audit.

(i) It reveals profitable and unprofitable products and operations.

(j) It encourages research into improved methods of manufacture and process and also accounting methods.

(k) It serves as a basis for bidding the contracts.

(l) It facilitates the reduction of labour turnover, as a uniform wage system is the precondition of a Uniform Costing System.

(m) Unhealthy competition is avoided among the firms in the same industry in framing pricing policies and submitting tenders.

(n) Bigger firms will share their experience, knowledge, skill, methods, know-how, etc., with the smaller firms in the industry.

Limitations of Uniform Costing:

Establishing and operating uniform costing is difficult due to the following limitations:

(a) A lack of standardized terminology. This limitation can be overcome by adoption of uniform cost accounting manual. It is difficult to accomplish the standardization of terminology or definitions.

(b) It would be great difficult in fitting the methods advocated by the system into the framework of each individual business. Many differences exist such as age of plant, investment of project, geographical location, availability of labour and material, degree of mechanization etc.

(c) It may cause to incur to high cost of installation during implementation of uniform costing. This may be objectionable to some of the firms, especially small firms. In consideration of the economics of costs and benefits, the bigger firms will be able to take the advantage of the uniform costing to their individual concern than the small firms.

(d) The main objection for uniform costing is that the business concerns are avert to reveal/ disclose their data/information to the trade association in the belief that confidential information will be disclosed to competitors.

To overcome this difficulty, it is often necessary to restrict publication of the following:

(a) General production statistics,

(b) Average cost of the industry as a whole,

(c) Costs in respect of three highest cost members, and 

(d) Costs in respect of three lowest cost members.

The individual firms’ names should not be disclosed in the report:

(i) Uniform costing may lead to monopolistic tendencies resulting in maintaining of prices at higher levels by curtailing supplies and acting of all concerns in the industry in concert.

(ii) The accuracy of data provided cannot be relied upon in making comparison of efficiencies among different units.


You have recently been appointed Management Accountant of a company which has interests in a number of businesses. One of its major interest is in the hotel business, where it has acquired a number of medium sized companies, each of which operates its own hotels. The Chairman of the company has been advised that it would be difficult to operate a system of uniform costing in the hotel group because none of the hotels are alike.

You are required to present a report to the Chairman in which you should discuss the concepts of Uniform Costing and, in particular, how you would propose to operate such a system in a hotel group.


From: Management Accountant

To: The Chairman

September 1, 2009

Sub: Uniform Costing within the Hotel Business

The basic concept of Uniform Costing is that different units/establishments engaged in the same industry use the same costing techniques, procedures and practices. This makes possible comparison about the efficiency of one cost centre with another or the efficiency of each cost centre with a predetermined budgeted series of ratios for certain specified key functions.

In a hotel industry a high proportion of the total costs are fixed. Some of these consists viz., rent and rates, may be classified uncontrollable since the local management is not able to influence the expenses of rent and rates. With these two possible exceptions, however, the remainder of the costs could be classified as controllable by the local management.

The key factor to hotel profitability is room occupancy. If this is greater than 75%, reasonable profits ought to be earned. Consequently, a series of ratios ought to be established. These would be based on a common and uniform classification of revenues and expenses, such as room letting, restaurant, wine cellar, bars, valets, etc.

There are certain expenses not capable of being identified with a particular revenue. They include cleaning, portering, reception, general management, etc. These expenses can be classified as controllable fixed costs and may be deducted in total from the total contribution from the specified service activities.

The direct costs associated with room letting, restaurant, etc. should be deducted from the resulting revenues from those activities. The profit volume ratios (contribution/revenue) would form important comparative ratios between establishments (cost centres). They would be the most important aspect of the Uniform Costing System.

Introduction of Uniform Costing would require first of all common classification and coding system for expenses. This would require visiting all cost centres. I would like to explain to the local level management the usefulness of introducing a uniform system throughout the hotel group. In this connection I would also require the wholehearted support of the top management.

The entire accounting year will be divided into 13 four weekly periods. Each cost centre will be required to submit financial report for each four weekly period giving details of revenues and expenses together with the appropriate ratios as compared with the standard or normal ratios. Each cost centre/ establishment will also be required to explain in the report the significant variances between actual and the expected results.

I am confident that such a system, would result in improving the overall efficiency of the organization and will in the long-run be beneficial to all concerned.

Yours sincerely


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