1

Borivali Education Society

Matrushri Pushpaben Vinubhai Valia College of Commerce
M. K. School Complex, Factory Land, Borivali (w), Mumbai 400092.

A PROJECT
ON

Uniform Costing

IN THE SUBJECT OF ADVANCE COST ACCOUNTING

SUBMITTED TO
UNIVERSITY OF MUMBAI,
FOR SEMSTER II OF
MASTER OF COMMERCE (ACCOUNTANCY)
BY
BHAVYA P. SAVLA
ROLL NO: 112
UNDER THE GUIDANCE OF
ASST. PROF. MS. BHUMIKA PATEL

YEAR 2015-16

DECLARETION BY STUDENT

MR. BHAVYA P. SAVLA The student of M.com Part-I (2015-16) Roll No: 112 hereby
declare that the project for the strategic management titled.

Uniform Costing
Submitted by me for semester-II during the academic year 2015-16 is based on actual
work carried out by me under the guidance and supervision of Asst. Prof. Ms. Bhumika
Patel
I further stated that this work is original and not submitted anywhere else for the
examination.

Signature of Student.

EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project

Uniform Costing

Submitted by Bhavya P. Savla Student of M.Com part I. This project is original and best of
our knowledge and has been accepted for internal assessment.

Asst. Prof. Ms. Bhumika Patel

Internal Examiner

Professor V. Manikandan
External Examiner

I/C PRINCIPAL

ACKNOWLEDGEMENT

It given me immense pleasure to present this project while I taking this opportunity to thank
all of them who helped me to prepare this project and timely guidance received which help
me greatly in the competition of the project.

I would acknowledge my deep sense of gratitude to Asst. Prof. Ms. Bhumika Patel. For his
kind co-operation in this project at all stages. Her constant support, encouragement and
guidance without which the successful completion of this project would have been
impossible.

I would like to thanks our respected principle, librarians and other teaching and non- teaching
staff for their corporation in this project.

Last but not least I would also like to thanks all our friends for their suggestions and valuable
help.

Once again I would like to thanks all those people who have helped me to complete this
project on time.

INDEX
SR
NO.

CHAPTER NAME.

PAGE
NO.

1.

Introduction of uniform costing

69

2.

Overview of Uniform Costing

10 33

3.

Case Study of

34 36

4.

Conclusion, Recommendations

37 38

5.

Bibliography & References

39 41

CHEPTER 1:- UNIFORM COSTING

INTRODUCTION
Concept and Objectives:
Uniform costing is not a particular method of costing. It is adoption of common
accounting principles and in some cases common methods by member companies in
the same industry so that their cost figures may be comparable. Uniform costing can
be defined as the use by several undertakings of the same costing principle and
practices.
In other words, it is a technique or method of costing by which different firms of a
field or industry apply similar costing system so as to produce cost data which have
maximum comparability. Standard costs may be developed and cost-control is
secured in firm through mutual comparison.
Relative efficiency and inefficiencies in production may be identified and suitable
steps may be suggested to control and reduce the cost. The objectives of uniform
costing are to standardize accounting methods and to assist in determining suitable
prices of products of firms which adopt this method.
Thus objects of a uniform costing system are:
(a) It provides reliable data for making inter-unit comparisons of cost performances.
(b) It helps to arrive at the cost of production for the industry as a whole on a
common basis acceptable to all individual units or firm of the industry.
(c) It provides data to compare the cost of production and the production efficiencies
between one firm and others.
(d) It ensures that the product prices are based on authentic costing data.

Uniform Costing is not a distinct method of costing, Infact when several undertaking
start using the same costing principles and / or practices, they are said to be
following uniform costing. The basic idea behind uniform costing is that the
different concerns in an industry should adopt a common method of costing and
apply uniformly the same principles and techniques for better cost comparison and
common good. The principles and methods of compilation, analysis, apportionment
and absorption of overheads differ from one concern to the other in the same
industry, but if a common or uniform pattern is adopted by all, it helps mutually in
cost control and cost reduction.
Uniform costing is not a method of costing like marginal costing or ABC. But it is
good costing system to operate a business in which all the companies in any industry
follow the same type of costing principles and methods. For example, we talk about
electrical industry. Bajaj International Private Ltd, Bharat Heavy Electricals Limited
(BHEL), Centre for Electronics Design and Technology and Crompton Greaves
Limited (CGL) are the main electrical companies. If these companies join and make
a costing system in which they will use same costing methods and techniques, then it
will be said that these are following uniform costing. With this, these companies
reduce unhealthy competition.
Uniform Costing: It is not a distinct method of costing when several undertakings
start using the same costing principles or practices, they are said to be following
uniform costing. Different concerns in an industry should adopt a common method
of costing and apply uniformly the same principles and techniques for better cost
comparison and common good and helps in mutual cost control and cost reduction.
Hence, it is recommended that a uniform method of costing should be adopted by
the member units of an industry.
MEANING OF UNIFORM COSTING
Uniform Costing is not a distinct method of costing. In fact when several
undertakings start using the same costing principles and or practices, they are said to
be following uniform costing. The basic idea behind uniform costing is that the
different firms in an industry should adopt a common method of coding and apply

uniformly the same principles and techniques for better cost comparison an common
good.
Uniform costing is not a distinct method of cost accounting, but a technique of
costing and cost control that can be used by the members of the industry or trade
association. It is the acceptance and adherence of identical costing principles and
procedures by all or several units in the same industry by mutual agreement. CIMA
London defines Uniform Costing as, the use by several undertakings of the same
costing principles and/or practices. It can also be defined as a system of uniform
application of the principles of a costing method agreed upon and adopted by the
whole or majority of the manufacturer or executives, in any specific industry, thus
uniform costing simply denotes that a number of undertakings in a same industry
may use same costing principles and procedures to arrive at cost, so that mutual
comparison may be possible among them. The system is made operative through
Trade Association or Chamber of Commerce or some other central agency. Its
underlying idea is that whatever costing method is used, the same should be applied
uniformly by all the members of the industry.
Objectives of Uniform Costing
(1) Facilitates cost control and cost reduction.
(2) Fixing of common sales price among the different units.
(3) Improving performance of inefficient units by adopting uniform principle and
practices.
(4) Facilitates inter-firm comparison of cost of production.
(5) Establishment of common standard for the operations of different units.
(6) Formulation of common policies, methods and procedures for the participating
units.
(7) Ensures reasonable price to customers and profits to producers.
(8) Facilitates exchange of ideas and sharing experience to improve the overall
performance of common units.
(9) Avoidance of monopolistic trade practice among member units.
(10) To ensures steady demand and supply of finished goods for participating units.

Objectives

To provide meaning full recommendation regarding Uniform Costing.

To understand Uniform Costing.
The aim of my project is to know why Uniform Costing is necessary.
To know wheather Uniform Costing is really good or not.
And also it should be useful to others.

Methodology
There are 2 types of collection of data, Primary and Secondary data.

Primary- Questionary, Interview, Etc.

Secondary- Books , Magazines , Journals , Websites , Etc.
Since, I am undertaking these project for university purpose, and I am a college
going student, so collection of my data is secondary i.e through various books,
magazines, newspapers, and various websites.

Importance of Project
It is important not only to me but also to the society as well as nation.

Limitation of Project.

Since, I am a college going student, and these project is for university purpose,
review of my project is very limited. I have very limited time and insufficient
money, and hence I have gather very limited data. And because of lack of time,
financial crunch, limited resources, etc, I could not survey much at a primary level.

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CHEPTER 2:- OVERVIEW OF UNIFORM COSTING

APPLICATION OF UNIFORM COSTING (SCOPE):
Uniform costing may be applied in two different situations.
(a) Common Control and Management:
Uniform costing may be applied when number of units or firm producing similar
goods and services are under a common control or controlled by the same group of
management.
(b) Trade Associations:
Uniform costing may be adopted by firms or units which are related to a trade
association. Different firm may form an association through which they may adopt
common costing method and practice.
Requisites of Uniform Costing:
Uniform costing can be adopted if certain pre-conditions exists. The success of a
uniform costing system depends primarily on the cooperation extended by different
units or firm towards the working of the system. Every unit should agree to supply
required accounting and costing information without reservation to a central body
formed by them for implementation of the uniform costing scheme. This body has to
correlate, analyze and consolidate the information received from the different units.
Following are pre-requisites of uniform costing:
(a) Firms or units adopting uniform costing must be ready to provide and share
accounting and costing information freely.

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(b) They should adopt a common system of costing regarding classification,

distribution and absorption of costs. They must agree on a common technique of
costing e.g., absorption costing, standard costing or marginal costing.
(c) The firms must use a common terminology and procedure for cost ascertainment
and cost control.
(d) There should not be any restriction from the Government in adopting uniform
costing.
(e) A central body or proper organisation must be set up for preparing comparative
statistics for the use of member units participating in the uniform costing.
(f) Above all, the most important is that units or firms must have mutual trust,
confidence and cooperation.
Key Factors:
The success of uniform costing depends on certain key factors which would be
peculiar to each unit. These factors are uniformity in method of production, the size
of organisation and accounting method. The Method of Production of units should
be uniform. Besides similarity in output, the types of machinery used should be
identical. The difference in the type of machinery used will create variation in the
efficiency and therefore in costs.
There may be some other varying factors in production. Unless these factors are
leveled out by giving weight-age on an equitable basis the object of uniform costing
will not by served. The Size of Organisation of participating units should not be
different. If production capacities of units are widely different, they cannot follow
the same principles and practices.
The Accounting Method of different member units should be identical. If the
accounting method is different, the information needed for uniform costing may not
be available within reasonable time and frequency without unnecessary delay.

12

Standardisation:
The essential feature of Uniform Costing is adoption of standardised principles and
methods of cost accounting by different units introducing the method.
The standardisation may extend to following:
1. Method of Cost Accounting e.g., job costing, process costing or a variation of one
or both of these.
2. Accounting classification including coding.
3. Content of each account.
4. Methods of defining costs:
(a) Direct material
(b) Direct labour
(c) Direct expenses
(d) Overhead costs regarding factory, selling, distribution, administration, research
and development.
5. Methods of recovering depreciation.
6. Methods of allocating and/or apportioning overheads costs to cost centres and
jobs or products
7. Material control including the pricing of issue and valuation of stocks.
8. Methods of recording accounting data e.g., integrated accounting system.
9. Reports and statements for planning and control.
10. System of remunerating labour e.g., time rate or piece rates.

13

11. A Central Body should be established for carrying out the work of uniform
costing.
Uniform Costing: Difficulties, Advantages and Limitations!
Difficulties:

The introduction of Uniform Costing system faces a number of difficulties since the
cost structure of participating units or firm may vary due to following factors:

1. Difference in Size of the Firm and the Organization Structure:

The difference in the size of firms will result in difference in the division of work
and process of output. Larger firms may have more division of work than that of
smaller firms in the same process. The number of departments and supporting
services will be more in a large firm than the smaller ones and this will result in
higher overhead cost. Moreover, a large size firm can achieve economies of bulk
purchase which will not be available to the small firm.

2. Difference in Technology:

There may be difference in the technology used by member firms. Firms using more
sophisticated plant may lead to greater division of work into process. Their nature
and sequence of work will also differ from firms adopting less sophisticated
technology.

3. Difference in Range of Products:

14

A firm may produce only a few varieties of products whereas the other may produce
large number of varieties of products. The firm producing large variety will be in
advantageous position with regard to distribution of overheads.

4. Difference is the Level of Productivity and Efficiency:

Levels of efficiency and productivity may vary from firm to firm depending upon
skilled and experienced personnel, their tracing, supervisor, motivation and
cooperation of trade union.

5. Difference in Managerial Planning and Growth Rates:

There may be different growth rates of the member firms. With the result, the
planning of each firm may be different in terms of costing and pricing while uniform
costing requires common pricing system.

6. Difference in Costing Methods and Principles:

There may be difference in costing principle and procedure adopted by member

firms. For example, a firm may recover overheads on the basis of direct wages
whereas another may recover overheads on labour hour rate or machine hour rate
which may result dissimilarity in costs of the same type of product. Uniform costing
depends upon elimination of such differences. These differences can be eliminated
by application of common principles and procedure by member firms.

7. Difference in Geographical Situation:

In a big country regional difference create difference in cost structure of different

firms. There may be availability of cheap labour, nearness to raw material,
advantage of market and favourable climate to some firms. Many states may offer
concessions in power rates, interest rates, tax rates. All these factors will create
difference in the cost structure. These require reconciliation before implementation
of costing structure.

15

Advantages of Uniform Costing:

In brief, the advantage of uniform costing system are achievement of greater

operating efficiency through common understanding of cost and a competitive spirit
introduced by comparison of cost, adoption of realistic pricing policies and
establishment of the best methods and principles of costing.
The following are various advantages of uniform cost accounting system:

1. Uniform costing helps member firms to adopt one of the best methods of cost
accounting system known to the industry. This eliminates unsound methods and also
saves cost required in perfecting systems through expensive trial and error or
experimentation.
2. Uniform costing tends to convince the member firms for adoption of method used
by the competitors.
3. Uniform costing develops better informed and healthy competition within the
industry which results in control and reduction of cost.
4. Uniform costing provides the members with all benefits of sound costing system.
On the basis of available reliable cost information, product pricing is taken up on
sound basis.
It checks unhealthy competition and price-cutting below costs. Moreover report is
provided for comparison of major cost items with predetermined standard costs. It
helps in controlling costs and increasing operating efficiency. The system also
provides information which guide to the performance and efficiency of labour,
machine and methods.

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5. Uniform costing system reveals unprofitable products or product lines and

provides valuable information to strengthen them.
6. Uniform costing also creates confidence in the customers that prices have been
fixed with reliable data of costs.
7. Uniform costing enables regulatory bodies and government to collect required
data relating to the industry.
Thus uniform costing is a useful tool for managerial control, performance appraisal
and standardization of operation in the industry. It avoid cut-throat competition.
Weaker member units can avail advantage of the efficient methods of production,
cost control and the research and development in the field.
Limitations and Disadvantages of Uniform Costing:

Uniform costing is sometimes opposed due to a number of problems and difficulties.

Standardization of definition and method is the key factor of uniform costing but it is
difficult to accomplish. Moreover if standardization is achieved, there is great
difficulty in fitting the method into the framework of each individual business
because many differences exist such as age of plant, geographical location,
availability of labour etc. How can a firm working with manual labour be compared
with a highly mechanized firm?
Following points may be noted as limitations of the method:

(1) The arguments generally advanced against the use of a uniform costing
system are:
(a) Sharing of confidential data with other competitors in the industry;
(b) Accounting inconveniences arising out of each individual unit having own
principle and practice which may be different

17

(c) The limited advantages which an unit can derive from the scheme.
(2) From the standpoint of the society, the disadvantage of uniform costing is
formation of trade association by firms just too restraining trade and impending
competition.
(3) Uniform costing generally creates conditions which develop monopolistic
tendencies under trade association. These associations may raise prices arbitrarily.
The essential requisites for the installation of uniform costing system
A successful system of uniform costing requires the following essential requisites for
its installation:
1. The firms in the industry should be willing to share /furnish relevant data
information.
2. A spirit of co-operation and mutual trust should prevail among the participating
firms.
3. Mutual exchange of ideas, methods used, special achievements made, research
and know-how etc. should be frequent.
4. Bigger firms should take the lead towards sharing their experience and know-how
with the smaller firms to enable the latter to improve their performance.
5. Uniformity must be established with regard to several points before the
introduction of uniform costing in an industry. In fact, uniformity should be with
regard to following points:(a) Size of the various units covered by uniform costing.
(b) Production methods.
(c) Accounting methods, principles and procedures used.
Points on which Uniformity is essential before introducing Uniform Costing

The points in respect of which uniformity is required to be established before the

introduction of uniform costing in an industry are as below:

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(i) Uniformity in the size of various units where uniform costing is to be introduced:
The size of units should be more or less the same which are to be brought under
uniform costing. Units differing in size should be classified in a number of
categories according to their size. Since the cost structure in an organisation is
influenced by its size, the classification of units based on their size would make the
cost statements of these units more comparable.
(ii) Uniformity in the production method:
All units in an industry should use uniform methods of production.
(iii) Uniformity in the accounting method, principles and procedures:
In fact, the uniformity should be achieved in respect of following:
1. Identifying stages of production where costs are to be measured.
2. Same methods of valuing inventory should be used.
3. Cost unit.
4. Classification of costs and its components.
5. Identifying methods of pricing material issues.
6. Methods of remunerating and providing incentives to labour.
7. Basis of allocation and apportionment of overheads.
8. Basis of distribution and redistribution of overheads.
9. Methods of depreciation.
10. Treatment of notional expenses
11. Treatment of material losses.
12. Allocation / apportionment of joint costs.
13. Preparation of cost statements, reports and their submission schedule.
UNIFORM COST MANUAL:
It is a written document, which may be in the form of a booklet or bulletin,
containing the principles, methods and procedures for the ascertainment and control
of cost in uniform costing. It is necessary for the successful operation of uniform
costing system. Such a manual provide guidelines to the participating firms to
organise

their

cost

accounting

system

on

uniform

basis.

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The following are the salient features of a uniform cost manual.

1. It includes statement of objectives and purpose of the system, scope of the system,
advantages and extent of co-operation necessary.

2. It contains the general principles of accounting, nature coding, terminology to be

followed, classification and description of accounts. This section also includes
details of stock control, labour and overhead cost collection and control.

3. Essential cost data and various ratios to be computed for comparison of

performance and efficiency in the operation of the participating units.

4. Mode, format and time for presenting cost data and reports to the management.

5. It provides necessary guidelines about the treatment of depreciation, interest on

capital,

wastage,

scrap,

by-product,

etc.

ExampleA firm of printers is contemplating joining the uniform costing system being
operated by its Trade Association but the Managing Director is doubtful about the
advantages of becoming involved in the scheme. Prepare a report to the Managing
Director describing the advantages that the firm is likely to gain.
Answer
Dated .
From : Cost Accountant
Re : Report on the advantages accruing from becoming a member of uniform costing

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system operated by the Trade Association

I heard that you are contemplating of joining uniform costing system operated by
Trade Association. I also support this idea of joining such a system because of
multiple benefits which would accrue from it. Such a step would strengthen not only
the capability of decision making of our executives but may also enable them to
achieve other cost accounting objectives. The main advantages of joining uniform
costing system group are as follows:
1. Saved from the exercise of developing and introducing an individual costing
system.
2. A costing system devised by mutual consultation and after considering the
difficulties and circumstances prevailing in different firms may be readily adopted
and successfully implemented.
3. A comparison of cost figures of various firms of the system will facilitate the
firms to identify their weak and strong points besides controlling costs.
4. Standing of the firms in the industry would be known by making a comparison of
its cost data with others.
5. Research and development benefits of bigger firms may be made available to
smaller firms.
6. It helps Trade Associations in negotiating with the Government for any assistance
or concession in the matters of taxation, export subsidies, duties and price
determination etc.
7. Unhealthy competition is avoided among the firms in the same industry in
framing pricing policies and submitting tenders.
8. Prices fixed on the basis of uniform costing are representative of the whole
industry.

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9. Facilitates the reduction of labour turnover, as a uniform wage system is the

precondition of a uniform costing system.
10. It provides a basis for the comparative assessment of the performance of two
firms in the same industry but in different sectors.
11. It will facilitate the development/introduction of information system.
12. Optimum achievement of efficiency may be attempted by utilising the
experience of other concerns in the system.

What is uniform costing? What is the scope of uniform costing?

Uniform costing is the application of the same accounting and costing principles,
methods or procedures uniformly by various undertakings in the same industry. It is
a particular technique which applies the usual accounting methods like standard
costing,

marginal

costing,

and

budgetary

control.

Uniform costing method can be advantageously applied:

- In single organisation having number of branches.
- In a number of firms in the same industry who are inter connected through trade
association.
- In industries which are similar such as cotton, gas and electricity.

Why is uniform costing implemented?

Uniform costing method is implemented due to the following advantages:

22

- A useful tool for management control as the individual performance is measured

against norms set for the industry as a whole.
- It avoids cut-throat competition.
- Weaker units can take the advantage of the efficient methods of production so as to
increase their own efficiency.
- The achievements in research and development programmes may be shared by the
bigger units with the smaller units.
- Provides the best cost control system or cost presentation in the entire industry.
- It assists in educating the less informed units regarding the cost accounting
methods.
- It enables a comparative assessment between the two sectors.
- It helps the government in regulating prices of essential and important items.
- It helps in price fixation.
- It simplifies the work of wage boards to fix minimum and fare wages for an
industry.
-It helps trade association in negotiating the government in the trade matters.
What are the pre-requisites for successful implementation of uniform costing?
The pre-requisites for successful implementation of uniform costing are as
follows:
- Firms in the industry should have mutual trust and willingness to share relevant
information.
- A spirit of co-operation should be there among the participating firms
- Free exchange of ideas, methods used.
- Bigger firms should take the lead to share with smaller firms, their experience,
achievements of efficiency, improvements and know how to enable the later to
improve their performance.

23

- No hiding or withholding of information.

- No rivalry, competition among the competitors.
- Uniformity must be established with regard to several following points before
introducing
uniform costing in the industry:
1. Size of the units in the industry
2. Production methods
3. Accounting principles, procedures used

OBJECTIVES OF UNIFORM COSTING

The techniques of uniform costing may be introduced with one or more of the
following

objectives:

1. To avoid competition:
It eliminates cut-throat competition by fixing common prices on the basis of uniform
costing procedures. It thus also aims at bringing stability in prices of the products.
2. Cost comparison:
It enables different firms to compare the costs because the costs are based on same
principles.

Thus,

their

profitability

can

also

be

compared.

3. Measurement of efficiency:
Comparison of costs and profitability helps in measurement of efficiency. Uniform
costing enables the member participants to use this system as yardstick of their
achievements

and

performances.

24

4. Reliable prices:
The confidence is reposed in the public where the prices fixed are based on sound
and uniform costing principles. This will result in better and cordial relations
between

members

adopting

this

system

and

their

customers.

5. Cost control:
One of the objectives of uniform costing is an effective control over costs. This
facilitates location of unprofitable ventures. Un-economies and inefficiencies are
revealed at every stage. The uniform cost serves as the standard cost and helps in
controlling

the

off-standard

performances.

6. Better exchange of information:

Members having technical knowledge provide the benefit of their experience to
others. Free exchange of information leads to reduction in costs and improvement in
the

quality

of

the

product.

Here we detail about the meaning, objects, method, ratios, advantages and
limitations of Inter-Firm Comparison (IFC).

Meaning:

Inter-firm comparison is a natural outcome of uniform costing system. Uniform

costing is the foundation stone over which the structure of IFC is developed and
adopted in a large scale. Inter-firm comparison can be defined as the technique of
evaluating the relative performance, efficiency, costs and profits of firms in a given

25

industry. The meaning of IFC can be easily explained by considering the main
object of the system.
In other words IFC consists of following procedure:
(a) Data are collected from participating organization or firm by their trade
organization or centre of inter-firm comparison.
(b) The management of an organisation is provided with information which will
allow them to determine the efficiency being achieved, measured by comparing the
performances of other business.
(c) An attempt is made to show why results vary from one business to another, i.e.,
any weakness is highlighted.
(d) Extensive use is made of financial and cost ratios.

Objects of Inter Firm Comparison:

The main purpose of IFC is improvement of efficiency by showing the management

of participating firm its present achievements and possible weaknesses. These firms
have to contribute their data to the central body which acts as a neutral body. This
central body ensures confidence and it gives report regarding comparisons only to
participants.
Following are important objectives of inter-firm comparison:
(a) IFC analyses costs of different firms with a view to spot out relative efficiency.
(b) IFC provides aid to management in enforcing and reviewing budgetary control
and standard costing. These techniques enforced in one firm are compared with
those in other firms making more efficient use of the same. Inadequacies of standard
costing and budgetary control are located by making inter-firm comparisons and
remedial measures are introduced.

26

(c) IFC helps to prepare a comprehensive and detailed plan for firms or units to
obtain optimum use of human and material resources.
The main objection of IFC is the improvement of efficiency and identification of
weak points. IFC is a scheme consisting of exchange of information with regard to
cost, profit, productivity and efficiency between the participating firms through a
central organisation. IFC focuses the remedial measure of a number of problems
related to profit, sales and production.
In inter-firm comparison coordinated and monitored through an apex body or
central organisation, attention is usually concentrated on the following major
important are:
(i) Is profit adequate?
(ii) How efficient is selling?
(iii) How efficient is production?
Organisation of IFC:

The organisational set up for inter firm comparison may be in the form of either a
trade association or a Government department or centre for inter-firm comparison.
There may be a trade association of participating firms. Firms submit their required
information to the association. Trade association analyses the information collected
from firm and presents report to each member firm.
The job of coordinating and analyzing of data provided by firms of an industry may
be entrusted to a Government Department. The main objective of such organisation
structure of IFC is to exercise price control and regulation of firms.
In UK, the British Institute of Management had set up centre for Inter-firm
comparison in association with British Productivity council. The centre was
established just to meet the demands of trade and industry for an expert body for
inter-firm comparison. Such a type of organisation has to prepare schemes for inter
firm comparison. In India also there is need of such centre. Thus there should be a
central body to coordinate and monitor inter-firm comparison.

27
Method or Approach for Inter-Firm Comparison:

Firms wishing to obtain the benefits of inter-firm comparison have to approach the
central body or apex body constituted for IFC. A fee may be charged for carrying out
comparisons. The method of approach adopted by the central body will be governed
by the type of industry or trade and the problems and circumstances present.

The possible procedure may be as below:

1. Firms which are to participate in an inter-firm comparison have to submit their

data to the central body. These figures are compiled on the basis of uniform
definitions of terms, procedures, methods and accounting periods.
2. After all necessary steps have been taken to ensure that the participating firms can
benefit from the comparison, a number of ratios are compiled. These ratios are
shown in a summary form distinguishing.
(a) Ratios for the group of firm participating in the inter-firm comparison.
(b) Ratios for a single firm.
Each firm is given a report compiled along these lines.
3. The ratios for the group and the ratios for the single firm are compared one by
one.
4. Once any significant deviation from the norm (average return on capital
employed) is established, the possible reasons for this deviation may be located by
examining other ratios.

Ratios of Inter-Firm Comparison:

28

Ratios used in the inter-firm comparison are of four types:

(i) Primary Ratios
(ii) Supporting Ratios
(iii) General Explanatory Ratios
(iv) Specific Explanatory Ratios

All the ratios can be taken together to form a pyramid as given below:

29

In addition to above ratios, some other ratios may be used for the purpose of
systematic analysis of operational results. These cover all aspects of business
activities and are meant for measurement of effectiveness of the resources.
These additional ratios are briefly explained below:
(A) Ratios of Performance Measurement:
1. Value of Direct Material/Value of Production
2. Cost of Materials/Quantity Produced
3. Cost of Scrap / Cost of Raw Material
4. Quantity of Scrap / Quantity of Raw Material
5. Cost of Rejection / Cost of Production
6. Total Output / No. of Workers
7. Cost of Production/Machine Hours or Labour Hours

30

8. P.V. Ratio i.e., Contribution x 100/Sales

9. Contribution / Labour Hours
10. Wages/No. of Workers
11. Total Fringe Benefits/No. of Workers
12. Idle Time / Total Time
13. Overtime Hours / Total Labour Hours
14. Standard Hours for Actual Production / Actual Hours
15. Actual Hours / Budgeted Hours
16. Power Cost / Machine Hours
17. Repair and Maintenance Cost / Cost of Production
18. Advertising Cost / Selling Cost
(B) Ratios to Judge Profitability:
These ratios show how profitable are companys operations.
1. Gross Profit Ratio i.e., (GP/Sales) 100
2. Net Profit Ratio i.e., (NP / Sales) 100
GP ratio indicates manufacturing or trading efficiency while NP ratio shows overall
profitability
3. Return on capital employed i.e., Profit / Capital employed
ROLE indicates overall performance from the stand point of profitability. It is
primary ratio in the pyramid of ratios
(C) Ratios related to Turnover:

31

Turnover Ratio show how efficiently company is managing current assets.

1. Stock turnover ratio i.e., cost of sales/Average stock
This ratio shows the efficiency of inventory management. Average stock is average
of opening and closing stock
2. Debtors Turnover Ratio i.e., Debtors * Days or Months in a year / Annual Credit
Sales
Debtors turnover measures the efficiency in collection of debts
3. Creditors Turnover Ratio i.e., (Creditors x No. of days of months in a
year)/Annual Credit Purchases.
This ratio measures the efficiency of purchase department in realizing credit
facilities
(D) Liquidity Ratios:
These ratios show the liquidity position of the company to meet its day to day needs
of working capital
1. Current Ratio i.e., Current Assets/Current Liabilities
Current Ratio shows the ability of the company to meet its maturing current
liabilities. An ideal ratio is 2:1 but it may differ due to nature of business.
2. Quick Ratio or Acid Test Ratio i.e., Quick Assets i.e., Current Assets excluding
inventory/ Current Liabilities
Quick Ratio indicates ability of the company to meet its immediate current liabilities
out of readily realizable current assets.
Reporting:
The central body collects and analysis the data supplied by participating firm,
calculates relevant ratios and prepares report to be sent to individual member firm.

32

Normally code numbers are used in place of names of the firms so that information
may remain confidential. The results and interpretations are presented in the report
in such a way that individual firm data could not be identified.
On receipt of the comparative data and report of inter-firm comparison, it is the job
of the management of the firm to compare operating and other results and the
corresponding ratios with ratio furnished by the central body of IFC.
Advantages of Inter-Firm Comparison:

1. Under IFC the weakness of participating firms are revealed and the management
will be guided to remedial actions.
2. The firm will come to know the trend of sales, profit and cost of an industry or
trade as shown by different ratios. If all firms are suffering from falling sales, it will
be indicated by sales to capital or asset employed ratio. When an individual firm
compares its own ratio with the ratio of the group, it will see that there are general
reduction sales.
3. Management of participating firm are provided with most significant facts on the
basis of ratios carefully selected by the central body. The firm will have to do only
the study of the ratios and the necessary action.
4. Whether firm is doing better or worse than other firms is made known through the
ratios. The firm can take positive steps to improve efficiency.
5. The experience of the central body is at the disposal of participating firms. This
knowledge can be very valuable in the analysis of performance and profitability of
the firm.
6. Participating firm provide information willingly knowing that this remains
confidential.
7. IFC develops cost consciousness among participating firm.

33

8. IFC leads to avoidance of unfair competition. It guides in the direction of proper

and positive efforts towards improvement of performances.
9. Inter-firm comparisons and related data help in representing the problem of the
industry to regulating authorities and the Government in an effective and convincing
matter. Information regarding entire industry can be presented before the
Government and not the isolated problem of individual firm.
10. Collective information provided under IFC can help the industry in its
negotiations with trade unions.
Limitations of IFC:

It is obvious that inter-firm comparison is useful in improving productivity,

efficiency and profitability. But benefits are obtained only when ratios are properly
calculated and impartially used. The limitations of ratio analysis should be taken into
consideration. It should be noted that a single ratio is of a limited value and their
trend is most important. Moreover the limitation of uniform costing should also be
taken into consideration because uniform costing provides the very basis of interfirm comparison
It should also not be ignored that certain extraneous factors such as prolonged strike,
power shortage may also adversely affect the performance of the industry in a
particular period. Limitations and short comings of annual returns and data may also
affect the reliability of conclusions.
It can also be pointed out that there are practical limitation in the formation and
maintenance of an independent central agency for inter-firm comparisons. The cost
of introducing uniform costing may make the management of firm reluctant to
participate in a scheme of inter-firm comparison.

Method and Techniques of Costing

34

The methods or types of costing refer to the techniques and processes employed in
the ascertainment of costs. Several methods have been designed to suit the needs of
different industries. The method of costing to be applied in a particular concern
depends upon the type and nature of manufacturing activity. Basically, there are two
methods of costing namely: job and process costing. All other methods (such as
contract costing, batch costing, operation costing, output costing and multiple
costing) are variations of either job or process costing.
In addition to the methods stated above, there are certain techniques of costing
which are not alternatives to the methods of costing but which may be used for
special purpose of control and policy in any business irrespective of the method of
costing being used. Some of these techniques are standard costing, budgetary
control, marginal costing, absorption costing, and uniform costing. In essence, a cost
accountant should use these methods and techniques appropriately either
individually or in combination, for example, standard costing may be combined with
process costing to give standard process costing.

Areas of Uniform Costing

The more important areas where uniformity is to be achieved can be listed as
follows:
a. determination and adoption of the cost unit, cost centre and departments.
b. costing method to be used and cost treatment of the items in the costs.
c. system of costing.
d. cost control techniques.
e. cost and accounts classification.
f. methods of valuation of different stocks.
g. bases of apportionments and absorption of costs.
h. depreciation methods and rates.
i. treatments of waste, spoilage, defectives, scrap.
j. costing period and reporting periods.

35

k. treatment of interest on capital and on long-term loans.

l. cost treatment of overtime, holiday pay, etc. items of labour cost.
m. treatment of R & D costs.
n. formats of the cost reports and statements.
o. codification of cost accounts and reports, statements, etc.

CHEPTER 3:- CASE STUDY OF UNIFORN COSTING

CASE STUDY
School uniform costs 'break the bank' for poorer families

Charity warns that rising number of academies and free schools is piling on extra
pressure as clothing grants are axed
Pupils from Elizabeth Garrett Anderson School model new school uniform designs
at John Lewis. Photograph: Frank Baron for the Guardian

Toby Helm and Eleanor Busby

Saturday 3 September 2011 20.50 BSTLast modified on Saturday 9 January

201619.00 GMT

Save for later

The rising cost of school uniforms risks "breaking the bank" for poorer families as
more state schools demand costly branded items and local authorities cut clothing
grants, a new report warns.

36

With millions of children preparing to return to school, a study from charity Family
Action, which supports disadvantaged families, says many poorer parents will have
paid out 40% of their monthly income in August on "back-to-school costs" alone. It
calculates that the bill for equipping a child for the first day of secondary school now
averages 191.96 when clothing and equipment are included.
The average cost of uniforms for boys is 160.74 and for girls 155.95. The average
for a primary school outfit is 113.44. When other equipment everything from
pencil cases to calculators and dictionaries is taken into account, the cost climbs
further.

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Family Action says that uniforms are popular with parents because they "like the
overall presentation and smartness" and because they hide "income differentials" as
all children are dressed the same. It also suggests that most children like them as
"they do not need to worry about having the latest fashions" and therefore do not feel
under pressure from their peers. But it says there is clear evidence that the costs to
families are rising as schools become more demanding and as more local
authorities withdraw financial support for children moving from primary to
secondary school.
The report also warns that the rising number of "academies" and "free schools"
could push costs still higher as pupils have to wear distinctive uniforms, available
only from specialist shops. This means they are unable to take advantage of cheaper
offers in supermarkets.
One fifth of secondary schools are now academies. The first 24 independent statefunded "free schools" open their doors this month.
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37

Family Action found a wide range of support across the country. In the London
borough of Hackney, vouchers worth 100 are available to children from households
with annual incomes below 16,190 who are transferring from primary to secondary
school. But such support is not available in three out of five London authorities. In
the north-west of England, only two in five local authorities provide grants.
Helen Dent, chief executive of Family Action, said: "It can't be right that going back
to school breaks the bank for some families. Too many families struggle to make
ends meet over the expensive summer months in preparation for September. We
have some good examples of local councils supporting vulnerable families, but for
many families there is no such help and going back to school is squeezing family
finances.
"With an increase in the number of academies and free schools in the offing, we
want to see firmer guidance from government so that children don't miss out and
parents don't dread their children going back to school."
The charity is calling for branded items to be kept to a minimum, and for limits on
the number of compulsory items. It is also pressing for more local authorities to offer
help. "Devolved budgets for schools should include a ring-fenced amount for school
uniform grant schemes for the poorest pupils, so that children are not disadvantaged
at school and family finances aren't further squeezed," it said.
Lizzy Clarke, a mother of two from Islington, said: "I received a uniform grant of
150 last year for the transition from primary to secondary school. I tried to buy a
couple of sizes up to save money this year and put off buying the new uniform until
last week as I wanted to have enough money to make the summer holidays
enjoyable."

38

CHEPTER 4: CONCLUSION. RECOMMENDATION

RECOMMENDATIONS

Overall, there was overwhelming support for school uniform per se from parents,
pupils and the schools themselves. However, a number of recommendations have
emerged from the evidence, relating to both policy and practice.
Recommendations for policy issues to be considered by the Welsh Assembly
Government
Review the provision of board and lodging costs (for residential trips) for those
eligible for free school meals and who should meet this cost to avoid placing
considerable strain on the finances of schools (particularly those schools that have a
high concentration of potential eligibility).
Continue to provide guidance for schools on developing and implementing a school
uniform policy (including examples of good practice), whilst ensuring that schools
are still able to develop their policies according to their schools specific
requirements. If possible, alignment with primary school requirements could be
taken into account by secondary schools, to see whether any core items (such as
sports equipment or basic school uniform items) could continue to be used at
secondary schools.
Consider extending support for school uniform costs to those on low incomes (for
example, in receipt of a high rate of tax credits) as currently they are ineligible for
any financial support but can face significant difficulties in paying for required
items.
Ensure that the Welsh Assembly Government one off grant (100 payable at Year 7)
is not replacing any LEA provision.

39

Ensure that LEA provision is consistently available across all LEAs.

Consider the feasibility of capping the annual or individual cost of residential trips
perhaps in consultation with schools and parents.
Ensure that there is appropriate policy guidance for schools in offering financial
assistance to families to help them meet the costs of school 118 trips. Currently, it
appears as though some parents are unaware of the availability of support and others
feel reluctant to seek it out.
Offer guidance for schools wishing to set up their own school uniform shop, which
would enable them to deal directly with mail order suppliers.
Review outcomes from the One Wales Laptop pilot to assess whether this approach
needs to be applied to secondary schools in addition to primary schools.
Consideration of access to school uniform suppliers some families (particularly
those without a car) could find it difficult to access suppliers. As noted above, one
option may be for the school to host a school uniform shop, making access easier,
keeping the cost down for parents and enabling any profits to be fed directly into
school funds. It may also be possible for parents to access school uniform supplies
online (assuming they have access to the internet).
Explore the feasibility of establishing a direct relationship with a school uniform
supplier who is able to supply the school directly (perhaps through mail order) in
some cases suppliers may be happy to provide a small proportion of income from
orders placed by parents to go directly into a school fund.
The requirement for compulsory logoed items needs to be carefully considered by
schools when they are developing their uniform policies; and schools should
endeavour to have an appropriate balance of having its own distinct identity, whilst
also ensuring that uniform items are widely available and affordable. Schools should
therefore review the need for logoed items, or limiting them to just one or two
(reasonably priced) items of clothing.
Schools should explore the feasibility of being able to sew badges or logos on to
school items to enable parents to have the flexibility and choice to buy items from a
range of suppliers which can then have the school logo added.

40

BIBLIOGRAPHY & REFERENCES

BIBLIOGRAPHY
ACCA, (1987). Costing Study Text. BPP Publishing Ltd.
Accountancy Training and Publication Ltd. (2000). Cost Accounting. ICAN
Distance Learning Pack
Arora, M.N. (2008). A textbook of Cost and Management Accounting, 8th
Edition. Vikas Publishing House, PVT Ltd.
Drury, C. (2005). Management and Cost Accounting, 6th Edition.
Thomson Learning.
Horngren, C.T., Foster, G., & Datar, S.M. (1994). Cost Accounting. A
Managerial Emphasis. 8th Edition, Prentice-Hall.
Peters, M.O. (1992). Cost Accounting: Its Principles and Practice. Gbabeks
Publishers Ltd., Ibadan.
Bevan Foundation, 2009. Paying the Price for Being Poor
Citizens Advice Bureaux, 2007. Adding Up Citizens Advice Bureaux Briefing
End Child Poverty Network Cymru and Children in Wales, 2006. Tackling Child
Poverty in Wales A Good Practice Guide for Schools
Welsh Assembly Government , 2009. Children and Young Peoples Well-being
Monitor for Wales. See
http://wales.gov.uk/docrepos/40382/40382313/293077/1266940/2765056/Monitor_E
ng.pdf?lang=en
Welsh Assembly Government , 2008. Living in Wales, 2008 Welsh Assembly
Government, Statistics for Wales. See
http://wales.gov.uk/docs/statistics/2009/090430sdr612009en.pdf
End Child Poverty Cymru, 2006. The Cost of Education See

41

http://www.childreninwales.org.uk/areasofwork/childpoverty/endchildpovertynetwor
k/index.html
Ministerial

Direction,

2010http://new.wales.gov.uk/newsroom/educationandskills/2010/100323Education/?
lang=en (accessed 8th July 2010)
Office of Fair Trading, 2006. Supply of School Uniforms Review Office of Fair
Trading 2006
Peters, M; Carpenter, H; Edwards, G; Coleman, N. Costs of schooling 2007. BMRB/
Department for Children Schools and Families, 2009.

42

The weblography from which we have collected information are:1.

2.
3.
4.
5.
6.

www.google.com
www.askme.com
www.wikipedia.com
www.wikiaskme.com
www.shareslied.com
www.scribd.com