Advantages and Limitations of Uniform Costing | Cost Accounting

In this article we will discuss about the advantages and limitations of uniform costing.

Advantages of Uniform Costing:

Advantages of uniform costing can be discussed under different headings:

(A) To Member Units:

1. It facilitates cost comparison among different units which helps to know weak points of a unit.

2. The services of a professional cost and management accountant or consultant can be taken to devise a uniform costing for all members. This will prove more economical.

3. Computerized accounting system can be maintained for all member units.

4. One competent cost and management accountant can be appointed at the head office or association office to look after the cost accounting system of all units instead of appointing a separate accountant for each member unit.

5. It helps in enhancing efficiency and productivity as every member unit follows standard and efficient methods of production and production control.

6. It encourages standardization of material and labour. It also assists in the standardization of operations and performance.

7. It reveals profitable and unprofitable products or operations of all member units.

8. It avoids cut throat competition among the members by removing their rivalries and ensures healthy competition among the member units.

9. It helps the weaker units to get the benefits of research and development made by big concerns.

10. It creates cost consciousness among the member units by telling them the best ways of doing the things.

11. It helps the member units in cost audit and inter firm comparison.

(B) To Workers:

1. It ensures a uniform wage structure in all member units.

2. Employees will be benefited in sharing bonus and other amenities due to increase in efficiency and productivity.

(C) To Trade Associations:

1. Trade associations can have better control over all the member units of the industry in eliminating wasteful competition.

2. It improves profitability of the organisations by regulating the output and prices of member units.

3. It represents the problems of member units to the government in getting subsidy and other forms of concessions.

(D) To Government:

1. It enables the government in formulating various policies relating to fixation of price, granting subsidy etc. based upon the information of several industries.

2. It enables the government to give priority to public or private sector industry based upon their progress and prosperity.

3. The government can formulate tax rates based on the useful information supplied by it regulating profitability of the industry.

Limitations of Uniform Costing System:

This system is not free from limitations in-spite of the above advantages. These are:

1. Individual Units Differ:

Uniform costing presumes the application of same principles and methods in each of the member units. But individual units differ in respect of certain key factors as methods of production, size of the organisation, methods of accounting, location, age and condition of plant; nature of labour force, capital investment and degree of mechanization which make difficult the application of uniform costing.

Moreover, the individual requirements of each concern differ from those of the other concerns.

2. Monopolistic Conditions:

Under uniform costing, by virtue of the activities of the different units being coordinated by the central organisation or association, members may agree to a price which may be too high and lead to monopolistic conditions and customers may suffer because of this and withholding of supplies.

3. High Cost:

For smaller units, the cost of installation and operation of a uniform costing system may be more than the benefits derived from it and thus may prove to be a costly system for such concerns. Moreover, small firms in an industry may also believe that uniform costing system is only meant for big and medium size firms.

4. Lack of Trust and Confidence:

Generally the member units do not have trust and confidence on other units and do not provide the full information relating to technical procedures and many firms hesitate to share cost information with their competitors with the result the system may not prove to be a success.

Further the utility of uniform costing may he reduced because of non-cooperation of the participating members. Moreover, the cost computed under the uniform costing system may not be representative of all concerns. Distorted cost data provided by the member units may not give a correct picture in specified cases.

5. Lack of Flexibility:

It is not flexible i.e., cannot be changed whenever the need arises.