The Institute of Cost and Works Accountants of India, defines cost as “measurement, in monetary terms of the amount of resources used for the purpose of production of goods or rendering services”.
Cost means the amount of expenditure incurred or attributable to a given thing. It is considered as the price to be paid to attain the objective.
Cost is a resource sacrificed to achieve a certain objective.
Cost Accounting is the process of accounting for costs from the point at which the expenditure is incurred or generated to the acertainment of its ultimate relationship with various cost centres and cost units. It is a system of accounting which is concerned with output of costs of doing a certain activity which can be manufacturing or rendering services.
Cost accounting is associated with determination of costs relating to a particular process, product or activity. It is the way to capture the total production cost of an organisation by taking into consideration the costs associated to each production process.
The cost accounting is a significant system of ascertainments of costs, developed for management. It helps the internal management to take the best decisions, as the cost accounting provides with enough clarity pertaining to the costs associated to various processes.
Cost accounting is a formal system of accounting by means of which costs of various products or services, are ascertained and controlled.
Whelden defines Cost Accounting as, "Classifying, recording and appropriate allocation of expenditure for determination of costs of products or service and for the presentation of suitable arranged data for the purpose of control and guidance of management”.
The Institute of Cost and Management Accountants (ICMA) defines cost accountancy as, "The application of costing and cost accounting principles, methods, and techniques to the science, art and practice of cost control and the ascertainment of profitability".
Objectives of Cost Accounting:
This system of accounting helps to assertain and control the costs.
It helps to classify the expenses i.e. material, labour, expenses.
To allocate or charge the direct expenses to specific costs and to apportion common expenses to each product, contract or process on a suitable basis.
It assists the management to take various business decisions.
Indicates the management of any inefficiencies like wastage of raw materials, expenses.
To determine the selling price.
To advise the management on future policies regarding expansion, growth, capital Investments.
Cost accounting helps in effective cost control.
The figures of actual performance are compared with the targets to find out variation.
What Is Uniform Costing?
Uniform costing is not a very different method of costing, it is referred to as, when several undertakings start using the same principles or practices they are said to be following the method of uniform costing.
The primary motive behind the system of uniform costing is that different concerns prevalent within an industry should adopt the common uniform method of costing and the same principles and techniques for the better ascertainment of costs and its comparison. To prepare cost statements and reports on a uniform basis.
Various concerns use different methods of compilation, analysis, interpretation of apportionment, absorption of overheads, different strategies but if a common or uniform pattern is adopted it will definitely help to compare the data of the various companies in an industry.
ICMA London defines Uniform Costing as, " Uniform costing is the use by several undertakings of the same costing system, principles and/or practices”.
CIMA, London Terminology defines uniform costing as “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 like manner, the objective being to facilitate inter-firm comparison.”
Objectives of Uniform Costing:
Comparison: The primary motive of uniform costing is that it facilitate the comparison of costs and performances of various organisations in the same industry.
Efficient: It is used to improve production capacity level and overall efficiency by comparing the production cost of different units with each other. The various elements of costs can be easily compared and effective decisions can be made with the help of the data available.
Standardization: Standardization refers to a set rules or regulations in which the firm has to work under. Uniform costing plays an integral role to bring in standardization and uniformity in the operation of concerns.
Operational Efficiency: To compare costs, achieving reduction in cost and improvement in performance, fixing uniform prices, cutting, or eliminating unfair trade practices etc.
Advantages of Uniform Costing:
Uniform costing helps the organisations to produce cost statements which are easily comparable. It facilitates comparison of cost figures of various organisations to enable the firms to identify their strengths and weaknesses.
It saves the firms from the exercise of developing and introducing a costing system of its own.
The research and development benefits of bigger firms may be made available to smaller firms.
The services of various cost consultants or experts in the field may be jointly available to other phones in the industry.
It helps in the reduction of labour turnover as a uniform wave system is the pre-condition of a uniform costing system.
It significantly helps the trade unions to negotiate with the government for any assistant in the matters relating to taxation, exports, subsidies, duties, price determination, wage rates, etc.
Prices are fixed on the basis of uniform costing, therefore, they represent the whole industry and are reliable.
System of costing provides with a strong fundamental basis for comparative assessment of the performance of the two forms in the same industry.
Helps the Government to regulate the prices of essential commodities.
Disadvantages or Limitations:
The application of uniform costing system at all places is, at times not possible. Every business works in a different circumstance.
Disclosure of cost information and other confidential data is an essential requirement of a uniform costing system. Businesses do not wish to share such confidential information with their competitors in the same industry.
One of the requirements of the system is that, bigger firms should take the lead towards sharing their experience and know how with the smaller firms to enable them to improve in their performance but businesses must be willing to do so. Each business is not in the position to share its core business mechanism with its competitors.
It can lead to monopolistic trend as the prices may be increased artificially and supplies with held.
Areas Where Uniform Costing Can Be Implemented:
Strategies of cost control
Methods of Labour Remuneration
Valuation of inventories
Classification of costs
Methods for apportionment and absorption of overheads
Accounting treatment of Administration overheads, Selling and Distribution overheads
Ascertainment of proper cost units and cost centers
