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BBA Study Material to Cost Accounting of Uniform Costing Interfirm Comparisons And Cost Audit Topic wise Short Notes

BBA Study Material to Cost Accounting of Uniform Costing Interfirm Comparisons And Cost Audit Topic wise Short Notes : BBA Cost Accounting Free Online Books Notes Study Material Sample Model Question Answers Sample Model Papers in English PDF Download.

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BBA Study Material to Cost Accounting of Uniform Costing Interfirm Comparisons And Cost Audit Topic wise Short Notes
BBA Study Material to Cost Accounting of Uniform Costing Interfirm Comparisons And Cost Audit Topic wise Short Notes

Bba Study Material to Cost Accounting of Uniform Costing, Interfirm Comparisons And Cost Audit: After Studying This Post, You are able to Understand the topic is: Cost Accounting Records, Financial Audit, Interfirm Comparisons, Management Audit, Propriety Audit, Statutory Audit, Uniform Cost Manual, Uniform Costing.

Learning objectives

  • Meaning and definition of uniform costing
  • Contents In Uniform Cost Manual
  • Benefits And Limitations Of Uniform Costing
  • Meaning And Procedure Of Interfirm Comparisons
  • Difficulties In Interfirm Comparisons
  • Meaning, Definition And Objects Of Cost Audit
  • Important Legal Provisions As To Cost Audit
  • Summary Of Cost Audit ( Report) Rules, 1996
  • Distinction Between Cost Audit And Financial Audit
  • Cost Accounting Records To Be Maintained
  • Brief Outlook Of Management Audit, Efficiency Audit And Propriety Audit


Bba Study Material to Cost Accounting of Uniform Costing Interfirm Comparisons And Cost Audit Topic Is Uniform Costing Short Notes

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 undertaking in the same industry or in different companies and firms. When different undertaking in the same industry or in different 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 uniform costing can be implemented easily among undertakings manufacturing the same type of products.

Uniform costing can be applied in the following situations:

(a) A business group which controls number of factories or firms producing similar products or operating similar operations.

(b) Different concerns belonging to a trade association.

The prerequisite for installation of uniform costing is that the firms in the industry should be willing to share/furnish relevant data/information with other firms in the industry. Mutual trust and co-operation is the basic tenet of uniform costing. Uniform costing is a system using common concepts, principles and standard accounting practices adopted by different entities in the same industry 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 with in the industry and to assist in fixation of common selling price for the industry as  a whole.

Bba Study Material to Cost Accounting short notes of Uniform Cost Manual

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 following the uniform costing system:

  • Statement of objectives and purpose of the system, advantages and extent of co-operation necessary.
  • Essential cost data and various ratios to be computed for comparison of performance and efficiency in the operation of participating units.
  • Method of cost accounting e.g., job costing, process costing or a variation of one or both of these.
  • Accounting classification including codes.
  • Contents of each account.
  • Definition of direct and indirect costs, overheads.
  • Methods of recovering depreciation.
  • Methods of allocating and/ or appropriating overhead costs to cost centres and jobs or products by applying machine hour rate, labour hour rate,; percentage of direct material, direct labour , prime cost, works cost etc.
  • Method of recording accounting data e.g., integrated accounting system.
  • Systems of remunerating labour e.g., time rate , piece rate etc.
  • Classification of production and service departments.
  • Pricing method of stores issues e.g., FIFO, LIFO, average cost etc.
  • Method of valuation of WIP e.g., prime cost , factory cost , marginal cost etc.
  • Unit of cost e.g., tone , kg, dozen, liter , etc.
  • Costing technique to be used: actual , standard or marginal.
  • Adoption of similar classification of accounts and form of statements and reports for accounting , planning and control.
  • Segregation of direct and indirect materials, direct and indirect wages etc.
  • Mode of dealing with the special expenditure items like:

– Interest on capital

– finance charges

– Research and development cost

– Stores and material handling expenses

– Depreciation

– Notional rent

– Directors remuneration

– Overtime and holiday pay

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

– Wastage, scrap and by-products

  • A central body, such as 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.

Bba Study Material to Cost Accounting Short Notes of Benefits of uniform costing

Benefits of uniform costing

For introduction of uniform costing in an industry , first of all the top management 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:

  • It help the firm 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.
  • It facilitates cost comparison among different concerns producing same products and enable each concern to measure its own efficiency with its competitors.
  • Greater ease in operating can be achieved by thorough understanding of costs and competitive spirit inculcated in the industry.
  • It facilitates improvement in labour, machinery and production methods and techniques.
  • It leads to increased productivity and reduced cost per unit.
  • Best methods and principles of costing are followed in the industry.
  • It serves as a basis for government in framing the policies in pricing of products , fixing of tariffs, granting of subsides and incentives , policies of equitable distribution etc.
  • It serves as prerequisite to cost audit.
  • It reveals profitable and unprofitable products and operations.
  • It encourages research into improved methods of manufacture and process and also accounting methods.
  • It serves as a basis for bidding the contracts.
  • It facilitates the reduction of labour turnover, as a uniform wage system is the precondition of a uniform costing system.
  • Unhealthy competition is avoided among the same industry in framing pricing policies and submitting tenders.
  • Bigger firms will share their experience, knowledge, skill, methods, know-how, etc., with the smaller firms in the industry.

 Bba Study Material to Cost Accounting Short Notes of Limitations of Uniform Costing

Limitations of uniform costing

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

  • A lack of standardised terminology. This limitation can be overcome by adoption of uniform cost accounting manual. It is difficult to accomplish the standardisation of terminology or definitions.
  • 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 mechanisation etc.
  • It may cause to incur to high cost of installation during implementation of uniform costing. This may 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.
  • 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 it is often necessary to restrict publication of the following:
  1. General production statistics
  2. Average cost of the industry as a whole
  3. Costs in respect of three highest cost members
  4. Cost in respect of three lowest cost members

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

  • Uniform costing may lead to monopolistic tendencies resulting in maintaining of prices at higher levels by curtailing supplies and acting of a all concerns in the industry in concert.
  • The accuracy of data provided cannot be relied upon in making comparison of efficiencies among different units.

Bba Study Material to Cost Accounting of Uniform Costing Inter Firm Comparisons And Cost Audit Topic is Inter Firm Comparison Short Notes

Inter Firm Comparisons

An inter-firm comparison is a technique of evaluation of performance, efficiency, costs, profits etc. of firms producing same type of products. It consists of voluntary exchange of information/data concerning costs, prices, profits, productivity, efficiency among the concerns engaged in same industry. The main objective of Interfirm comparisons is to improve the efficiency of the industry by highlighting the weakness and strengths. Uniform costing is a prerequisite in adoption of Interfirm comparisons. It inculcates cost consciousness among members of the industry. It brings out the efficiency of management in carrying out the operations of the company. Trade associations generally collect the required information from its members and disseminate the results to its member. The; nature of information generally collected, processed and published relating to the following:

  • Raw material consumption
  • Production units wastage and scrap
  • Labour wage payments
  • Labour efficiency and utilization
  • Capital employed
  • Sales revenue and sales quantity
  • Working capital and liquidity position
  • Appropriations and dividends
  • Cost structure
  • Methods of production and process
  • A major source of information is published annual accounts. Trade associations may also collect the supplementary information by sending questionnaire to each of its members.
  • Information so collected will be available only to the members of the association.
  • The limitation of uniform costing is applicable to the Interfirm comparisons.

Bba Study Material to Cost Accounting Short notes of Procedure in Making Inter Firm Comparisons 

Procedure in Making Inter Firm comparisons

Inter Firm comparisons may take a variety of different forms. An Interfirm comparison consists of the following procedure:

  • Data are collected from participating organisations by the centre for Interfirm comparison.
  • The management of an organisation are provided with information which will allow them to determine the efficiency being achieved, measured by comparing the performances of other businesses.
  • An attempt is made to show why results vary from one business to another i.e., any weaknesses are highlighted. Extensive use is made of financial or cost ratios. These are selected with great care bearing in mind the problems which are being faced.

Bba Study Material to Cost Accounting Short notes of Purpose of Interfirm Comparisons

Purpose of Interfirm Comparisons

The main purpose of Interfirm comparisons is the improvement of efficiency by showing management the present achievements and possible weakness. Firms contribute figures to the centre which is a ‘neutral ‘body. Great care is taken to ensure that confidential matters are never betrayed and only participants are given a report on any comparisons which is made. Many problems may be overcome through the assistance of Interfirm comparison. More usually attention is focused on any weakness which may exist.

Bba Study Material to Cost Accounting Short notes of Problem in Interfirm Comparisons

Problems in Interfirm Comparisons

Some of these special problems may be the following:

  1. Is profit adequate?
  2. How efficient is selling?
  3. How efficient is production?

These and similar question are always present in any business so obviously any system, method or advice which assists in providing solutions is to be welcomed. More details of these problems are now considered.

 Adequacy of Profit

The principal motivating force in any commercial enterprise is profit. Success is measured by the size of the profit in relation to the capital employed. if the earning power of a business does not at least equal that of other similar concerns then there is probably some factor or a combination of factors which is not operating efficiently . These may then be isolated by means of ratios.

 Efficiency in Selling

Unless goods are sold there can be no profit. The sizes of the total sales to operating profit and to assets employed are key ratios in illustrating important facts in the profit-earning structure. The operating profit to sales ratio indicates the total margin earned by the sales. Expressed as a percentage it will show the percentage earned on sales. The sales to assets employed ratio shows how many times capital employed is covered by sales. Put another way it indicates how much is sold per Re. 1 invested.

The ‘size of the sales’ (sales to operating assets ratio) can be analysed still further by the following ratios:

  1. Sales to fixed assets.
  2. Sales to current assets, analysed into:
  3. Stock turnover
  4. Turnover of debtors
  5. Production efficiency-

The production departments have to produce an adequate volume of output at costs which are reasonable i.e., which enable a sufficiently large gross margin to be earned. The factory cost broken down into.

  1. Direct material
  2. Direct labour and
  • Production overheads, and related to the sales value of production should indicate relative size of these three main elements of cost.

Comparisons with other firms’ figures or with its own preceding periods’ figures may point out a possible source of inefficiency e.g., labour utilization or machine utilization. A detailed analysis and investigation can then follow.

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