Course : PGDBA-Operations

Register No. : 200309032

Name : Vaddadi Chitti Ramarao

Address : New No: 9, Teachers Colony,
Kasthurba Nagar, Adyar
Chennai-600020, India.

Phone No. : +91-44-52116327

Management Accounting Page 1 of 14

 BAR CODE

SYMBIOSIS CENTER FOR DISTANCE LEARNING(SCDL)

Atur Centre, 1068, Gokhale Cross Road, Model Colony
PUNE - 411016

ASSIGNMENT SHEET
(To be attached with each Assignment)

Full Name of Student : Vaddadi Chitti Ramarao

Registration Number :2 00309032

Subject of Assignment : Management Accounting

Date of submission of Assignment : 20th December 2003

(Question Response Record – To be completed by students)

Sr. No. Question Number Responded On Page Number of Assignment Marks

1 Question - 1 3
2 Question - 3 5
3 Question - 4 7
4 Question - 5 10
5 Question - 12 12
6 Question - 13 14
7
8
9
10
11
12
13
14
15
Total Marks: /100

Important Notes:

1. Please ensure that your Correct Registration Number is mentioned on the Assignment Sheet.
2. The date of receipt of the assignment shall be the date when the assignment was received at SCDL.
3. Please do not send any other communication along with your assignment.
4. Ensure to place the bar code label on each assignment sheet, without which SCDL will not accept the
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Signature of the Student:______________________ Signature of the Evaluator:________________________

Name of the Student: Vaddadi Chitti Ramarao Name of the Evaluator:___________________________

Date:_________________________ Date:_________________________

Management Accounting Page 2 of 14

Q.No. 1: Explain the term Accounting.? What are the different streams of Accounting.?
How are they related to each other.?
Answer:

Definition of Accounting

Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of
money, transactions and events which are of a financial character and interpreting the results as the
financial statements. It refers to the process of analyzing and interpreting the information already recorded
in the book of accounts. According to “American Accounting Association”, accounting is the process of
identifying, measuring and communicating information to permit judgment and decisions by the users of
accounts.

Accounting has rightly been termed as a language of the business. The basic function of business is to serve
as a mean of communication. Accounting communicates the result of the business operations to various
interested parties such as owner, creditors, investors, government and others agencies.

In business, the need for accounting is of great importance. Accounting records gives position as to:

• What the business owns (Assets & properties)

• What the business owns (Liabilities)
• What is the extent of profit earned or losses suffered in an accounting period(Profit & Loss)
• What is the capability of the business to honor the financial commitment and obligations and
• When they fall due (Liquidity)

Accounting has been recognized as a tool for mastering various economic problems. It provides information
which can be taken into the decisions to decide the future of the organization.

Objectives of Accounting

• To keep systematic records: Accounting is done to keep the systematic records of the financial
transaction. In the absence of accounting it would become very difficult for a businessman to keep a
proper record of transactions of the business.

• To protect business properties: Accounting is done to protect the business properties from
unjustified and unwanted use.

• To ascertain the operational profit or loss: One of the main objectives of accounting is to ascertain
the operational profit and loss in an accounting period. This is done by properly maintaining the of
revenue & expenses for a particular period.

• To ascertain the financial position of the business: Ascertaining the financial position of the business
required the operation of balance sheet and Profit & Loss A/c shows the performance of business
during a given period. Balance sheet shows the state of affairs of assets and liabilities on a given
point of time.

• To help rational decision marking : Accounting has been recognized as a tool for mastering various
economics problems. It’s objective is to provides information which can be used to taken decisions
to decide the further of the organization.

Streams Of Accounting: The process of accounting is divided into three streams:

Financial Accounting: The process of systematic recording of the business transactions in the various books
of accounts maintained by the organization with the ultimate intention of preparing the financial statements,
which are of two forms:

• Profitability statement – indicates the results of operations carried out by the organization during a
given period of time.

• Balance sheet – indicates the state of the organization at any given point of time in terms of its
assets & liabilities

Financial accounting is a legal requirement and is basically meant for the people like customers,
customers etc who are external to the organization.

Management Accounting Page 3 of 14

Cost Accounting: The process of classifying and recording of the expenditure in a systematic manner with
the intention of cost controlling. It is the application of costing and cost accounting principles, methods and
techniques to the science, art and practice of cost control and ascertainment of profitability as well as the
presentation of information for the purpose of managerial decision making. Cost accounting is not a legal
requirement but is important to the people who are internal to the organization to help in decision making.

Management Accounting: The process of analysis and interpretation of financial data collected with the help
of financial accounting and cost accounting with the ultimate intention to draw certain conclusions there
from in order to assist the management in the process of decision making. Management accounting is a
service function which is concerned with providing various information to the management by measuring the
actual performance & reporting the deviations from the plans & standards set.

Comparison of different forms of accounting – relation among them:

These three forms of accounting are related to each other, having their own merits in improving the
business performance. It is important for us to know how they are related to each other.

The financial accounting records the business transactions systematically in the various books of accounts
maintained by the organization to prepare the financial statements.

Cost accounting classifies & records the expenditure in a systematic manner with the intention of cost
control.

Management accounting analysis & interprets the financial data collected with the help of financial
accounting & cost accounting with the intention to draw certain conclusions in order to assist the
management in the process of decision making.

Financial accounting records the historical data which may not be of any use from the cost control point of
view. It also does not consider the non-financial factors.

Cost accounting in addition to considering the historical data i.e., financial accounting, considers the future
events also.

Management accounting takes into consideration both the financial accounting & cost accounting in addition
to non-financial accounting.

Financial accounting is a legal requirement whereas cost accounting & management accounting are not. But
in cost accounting sometimes it might be necessary to maintain records in certain company form of
organizations

Reports generated by the financial accounting reports the financial performance of the organization as a
whole.

The reports developed by the cost accounting& the management accounting may deal with various aspects
of the organization in addition to the organization as a whole it also considers the individual departments &
the individual product also.

Financial accounting helps the people who are the outsiders i.e.; for the suppliers, investors, banks,
government authority etc.

Management accounting & the cost accounting are more are less similar, they help the management to get
better results by planning, executing the plan, coordinating & taking the correct decision. Management
accounting is considered to be the extension of managerial aspects of cost accounting.

Financial accounting generates the reports in the form of financial statements which is available only after
the relevant accounting period is over. Details provided by these reports need to be accurate.

With the help of these accurate results of the financial records the management is able to take proper
decisions by using the data. But here in the cost accounting & management accounting accuracy is not a
prerequisite.

Management accounting takes uses financial and cost accounting data, analyzes it in various ways & helps
in improving the business performance.

Thus to conclude we can say that “Accounting is the language of business through which the business house
communicates”.

Management Accounting Page 4 of 14

Q.No. 3: Write an essay on Depreciation.?
Answer:

Depreciation is the decrease in the financial value of an asset to wear and tear, defluxion of time,
obsolescence or similar causes, the suggestion is being rather that of gradual depreciation than sudden loss
of diminution in value.

Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset
arising from use, over a period of time or obsolescence through technology and market changes. From the
accounting point of view, depreciation is the systematic allocation of the depreciable amount of an asset
over its useful life.

Depreciation can be defined as a permanent, continuous and gradual reduction in the book value of a fixed
asset. In other words it is the decline in the value of a property due to general wear and tear or
obsolescence.

Depreciable Amount is the cost of an asset, or the other amount substituted for cost in the financial
statements, less its residual value.

Normally, all the fixed assets except land depreciate, in value rendering the asset useless after the end of
certain specific period. Things that can be depreciated: You may depreciate property that meets all five of
the following tests:

• It must be property you own,

• It must be used in a business or other income–producing activity,
• It must have a determinable useful life,
• It must be expected to last more than one year; and
• It must not be excepted property. Excepted property includes certain intangible property and term
interests and property placed in service and disposed of in the same year.

Causes of depreciation:

• Use factor: The fixed assets depreciate because they are used for the purpose they are meant for. It
is applicable in case of tangible assets like machinery, furniture, office equipments etc.

• Time factor: The fixed assets depreciate due to the passage of time.

• Obsolescence: It is the reduction in the value of fixed assets, say a machine, due to its suppression
at a date before it is completely worn out. It may take place due to new inventions, modifications or
improvements.

Depreciation Accounting:

It is necessary to distribute the cost of a fixed asset less the scrap or salvage or realizable value after the
useful life of the fixed asset is over, in such a way as to allocate it as equitably as possible to the periods
during which the benefits are received from the use of fixed assets. This system or procedure is called
depreciation accounting.

Needs for depreciation accounting:

To ascertain due profits by correctly matching the various costs and expenses incurred with various incomes
and revenues earned during various accounting periods.

To represent the value of a fixed on the balance sheet as its un expired cost i.e., at the book value less
depreciation.

Depreciation Convention:

Depreciation convention is meant to identify the type of depreciation property applicable for depreciating an
asset in the initial year of purchase on a pro rata basis, or using mid-year, mid-period or user defined
conventions.

Depreciation rates for a fixed asset can be different for internal management use, statutory requirements,
income tax requirements, etc.

Management Accounting Page 5 of 14

Methods for calculating depreciation:

Amount of depreciation is a function of various terms:

• Time
• Usage
• Time and usage
• Time & cost of maintaining the fixed asset
• Provision of funds for replacing the assets

The various methods for calculating depreciation are:

• Straight line method

• Written down value (reducing balance) method
• Sum-of-the-Years digit (SYD) method:
• Production unit method
• Production hour method
• Joint factor rate method
• Annuity method
• Sinking fund method
• Endowment policy method
• Revaluation method
• Renewal method

Brief description of main methods of depreciation:

Straight Line Method (SLM): Depreciation is equally distributed throughout the life of the asset.

Reducing Balance Method or the Written Down Value Method (WDV): In this method the depreciation
is charged on the reduced balance of the asset (Asset Book Value) but at a constant percentage.
Hence the depreciation charge is higher in the early years of the asset life and gradually reduces
every year.

Sum-of-the-Years digit (SYD) method: One form of accelerated depreciation method is the sum of
the years’ digits method where in depreciation expenses are higher in the early years of the asset’s
useful life and lower in the later years. Here the depreciation is charged on the Asset cost (less
salvage value if any) but the applicable rate reduces every year based on the remaining estimated
useful life.

Method of calculation:

Sum of years’ digits depreciation = Asset cost less salvage value * Applicable Fraction

Where Applicable fraction = No. of years of estimated life remaining as of the beginning of the year
Sum of Years digits

Sum of Years’ digits = n*(n+1)/2 where n = Estimated useful life

Depreciation Category:

Depreciation asset category is a group of assets/tags for the purpose of depreciation calculations.
Depreciation category can have different depreciation rules across depreciation books. For example,
depreciation category - Plant & Machinery, can be depreciated with SLM 10% in one book and WDV 15% in
another book. By default, each asset class will be a depreciation asset category. However, the need to have
multiple depreciation asset categories under an asset class arises, if different depreciation rate/methods
must exist in the same depreciation book, for assets falling under the asset class. For example, depreciation
for Heavy Machinery may be SLM 10% and for Light Machinery may be SLM 12%, though they fall under the
same Asset class. This will result in two depreciation asset categories under one asset class.

Management Accounting Page 6 of 14

Q.No. 4: What do you mean by financial statements.?
What are the limitations of the financial statements.?
Give the standard format of financial statement and explain each item appearing in the
financial statement.?
Answer:

Financial Statements: Financial statement is a statement that discloses the result of the business
transactions. The financial statements prepared by the organization are basically in two forms:

• Profitability Statements, which gives the result of business activity. The profitability statement gives
the amount of profit earned or the loss incurred.

• Balance Sheet, which gives the financial status at any given point of time. It is a listing of the assets
and liabilities of an organization at any given point of time.

Limitations Of Financial Statements: There are some limitations to the financial statements. They are:

• The base information is often out of date, i.e. timeliness of information leads to problems of
interpretation.

• Historic cost information may not be the most appropriate information for the decision for which the
analysis is being undertaken.

• Information in published accounts is generally summarized information & detailed information may
be needed.

• A financial statement only identifies symptoms, not cause & thus is of limited use.

• Effects of price changes make comparisons difficult unless adjustments are made.

• Different firms have different accounting policies & this affects the analysis of financial statements.

Standard Format Of The Financial Statements:

Profitability Statements:
Basically the profitability statement consists of following four components:

a. Manufacturing Account: This part of the profit & loss account discloses the result of
manufacturing operations carried out by the organization. The final result disclosed by the
manufacturing account is the cost of production incurred by the organization.

Following is the specimen of manufacturing account for the year ended on 31st march 2002.

Particulars Amount Particulars Amount

Raw material Raw material
Work in progress Work in progress
Purchases of raw materials Cost of production
Carriage inward (Transferred to trading
Wages paid account).
Power & fuel
Consumable Stores
Manufacturing expenses
Depreciation on production
assets.
Total Total

b. Trading Account: This part of profit & loss account discloses the result of trading operations
carried out by the organization. The final result disclosed by the trading account is the gross
profit earned by the organization.

Management Accounting Page 7 of 14

 Following is the specimen of trading account for the year ended on 31st march 2002.

Particulars Amount Particulars Amount

Opening Stock Sales (net of sales
returns)
Closing stock
Cost of production (brought Finished goods
from manufacturing
account)

Gross profit

Total Total

c. Profit & Loss Account: This part of profit & loss account discloses the final result of business
transactions of the organization. The final result disclosed by the profit & loss account is the
Profit after Tax (PAT) earned by the organization.

Particulars Amount Particulars Amount

Administrative Expenses Gross profit b/fd
Office Salaries Other Income
Postage & Telephone Discount Received
Traveling & Conveyance Commission Received
Legal Charges
Office Rent
Depreciation
Audit Fees
Insurance
Repairs & Renewals
Selling & Distribution Non Trading Income
Expenses Interest Received
Advertisement Rent received
Carriage Outward
Free Samples
Bad Debts
Sales Commission
Financial Expenses Abnormal Income
Interest & Bank charges Profit on Sale of Assets
Other Expenses
Loss on the Sale of Asset
Salary to the Working
Partners
Interest on Capital
Provision of Taxation
Net profit after Tax
(Transferred to capital
account)
Total Total

d. Profit & Loss Appropriation Account: This part of profit & loss account, discloses the manner in
which the PAT earned by the organization is appropriated. The amount of profit not appropriated
is transferred to reserves & surplus in the balance sheet.

Management Accounting Page 8 of 14

Balance Sheet: Balance sheet has two sides, those are: Assets and Liabilities

The standard format of balance sheet as on 31st march 2002.

Capital & Liabilities Amount Assets & Properties Amount

Capital Fixed Assets
Land
Building
Machinery
Furniture
Vehicles
Computers
Long Term Liabilities Investments
Loan from Bank
Current Liabilities Current Assets
Sundry Creditors Stocks
Advance from Customers Sundry Debtors
Outstanding Expenses Cash Balance
Income Received in Bank Balance
Advance Prepaid Expenses
Total Total

Liabilities: Credit balances in all the personal & real accounts appear on the liabilities side.
Following items appear on the liabilities side:

• Capital: It indicates the amount of funds contributed by the owners of the business to the
requirement of funds of the business. Also the amount of profit earned in the past, which is not
distributed, to the owner also belongs to the owner & becomes a part of the capital.

• Long Term Liabilities: This indicates which are to be paid off over a longer span of time say 5 to 10
years. It may consist of long-term loan borrowed from banks or financial institutions.

• Current Liabilities: This indicates the liabilities that are supposed to be paid off within a very short
span of time. It may consists of the following items:

o Sundry creditors: Amounts payable to the suppliers of goods and/or services.

o
o Advances received from customers: The amount may not be paid back to the customers. It
gets adjusted with the final selling price. Till getting adjusted it appears as the current
liability.

o Outstanding expenses: This amount indicates the expenses already incurred during the
relevant period but not paid for.

o Income received in advance.

o Liability for taxes.

Assets: Debit balances in all the personal & real accounts appear on the asset side.
Following items may appear on the assets side:

• Fixed Assets: It indicates the value of infrastructure properties acquired by the business where the
benefits are likely to be received over a longer duration of time. Some of the fixed assets that can
be found in practical circumstances are land, building, machinery, furniture, vehicles, computers etc.

• Investments: This indicates the amount of funds invested by the organization outside the business.

• Current Assets: Current Assets include the assets, which are likely to be converted in the form of
cash or likely to be consumed during the normal operating cycle of the business within very short
span. Some of the current assets that can be found in practical circumstances are stock, sundry
debtors, cash & bank balances, prepaid expenses etc.

Management Accounting Page 9 of 14

Q.No. 5: What do you mean by Bank Reconciliation statement.?
Why it is prepared.?
Give a standard format of bank reconciliation statement.?
Answer:

During the course of a business operation, at any given point of time, there could be a difference in the bank
account balance and the actual bank balance. The bank account balance is as per the bankbook maintained
by the company and the actual bank balance is as per the statement received from the bank. The difference
in these balances could be due to time lag that accompanies most bank payments and receipt transactions
like charging the “Expenses” account with the collection charges or the “Revenue” account with interest
received. It could also be due to the errors of omission / commission or compensatory errors.

In most occasions the differences arise when checks have been issued but have not been presented for
payment to the bank or interest received by the company has not been accounted in the company’s books.
It could also arise when checks deposited in the bank have not been realized, bank charges debited in the
bank statement have not been accounted in the books of accounts and so on.

This leads to discrepancies between the balances maintained in the bankbook and the bank statement as on
a given date. These differences must be reconciled to ensure a fair picture of the bank balance. The
unreconciled transactions are displayed as additions or deductions with respect to the bank balance along
with the following details:

• Transaction type

• Date

• Depositing point

• Pay-in-Slip number

• Prefix

• Check number

• Amount

• Remarks

• Company reference

A company reconciles the statement received from the bank and the bankbook maintained by the company
in regular intervals. The differences have to entered manually or upload from an authentic source to the
bank books as per bank statement.. The details of the bank statement can be modified provided the
transactions have not been reconciled. Similarly, the details of the bank statement can also be deleted if
transactions have not been reconciled.

Reconciliation can be done as following:

• Manual or Automatic Reconciliation: Reconciliation can be done both manually or automatically.

Automatic reconciliation is done based on check number and the amount or the pay-in-slip number
and the amount. When manual process is opted for then the matching can be based on several
parameters like amount, reference etc. The output of the reconciliation such as differences in
interest credited, bank charges debited will either be passed on to the relevant component for
updations.

• Unreconciled Transactions: A reconciliation process that has already been carried out can be nullified
in case of any errors in the transaction. When a transaction is reconciled where the final amounts
are not equal, then a sundry payment voucher is generated for the difference in the amounts. But
when the same is unreconciled, then the payment voucher does not appear as unreconciled since
posting happens only when release payments is done for the voucher. If reconciliation status is
completed on a specific date then the transactions cannot be unreconciled.

Management Accounting Page 10 of 14

Types of reconciliation:

The bank statement and the bankbook can be automatically or manually reconciled.

• Auto reconciliation: Automatically reconciles the statements on the basis of check number and the
amount or the pay-in-slip number and amount.

• Manual reconciliation: Allows the user to select the receipts and payments across the bankbook and
the bank statement for reconciliation, based on the amount. One or more entries in the bank
statement can be matched with one or multiple entries in the bankbook. The transactions are
retrieved in the account currency. The vouchers will be raised for the differences in the transaction
amounts. Tag groups can also be assigned to the transactions to reconcile multiple entries.
Reconciliation can also be made for transactions within the same bankbook or bank statement. If
transactions have been wrongly matched, the reconciliation can be reversed before confirmation.

Advantages while reconciliation:

• Facility to show the additions and deductions that have been made to the balances, with respect to
un-reconciled transactions. This helps to arrive at the book balance, from the bank balance as per
the bank statement.

• Facility to maintain the reconciliation status for every bank statement.

• Facility to update the reconciliation status for every transaction in the “Finance Book Processing”
component.

• Facility to view the “Bank Reconciliation Statement” as a report.

Prerequisites:

• Completion of the organization set up modeling in Enterprise set up

• Component Interaction model definition

• Availability of Finance book information

• Number generation set up

• Definition of banks in the Bank Cash Master

• Account rule definition for banks…

• Financial period /year in open status

• Definition of banks in the Bank Cash Master

Management Accounting Page 11 of 14

Q.No. 12: Explain the advantages and disadvantages of Standard costing as cost control
technique. ?
How standard costing is related to Budgetary Control.?
Answer:

Standard costing: Standard costing has been defined as the preparation and the use of pre-determined
costs, their comparison with the actual costs and the measurement and analysis of variances to their causes
and points of incidence.

Advantages of standard costing:

• Standard costing provides a yardstick with reference to which the efficiency/ inefficiency in
performance may be established. This facilitates the basic management function of cost control.

• Standard costing provides the incentive and motivation to work with greater effort for achieving the
standard.

• Standard costs may be used as the basis for the process of price fixation, filing the tenders and
offering the quotations. If the prices are to be quoted on cost plus basis, actual costs may not be
available in which case standard costs can be the base for fixation of selling prices.

• Standard costing system facilitates delegation of authority and fixation of responsibility for each
individual or department. This also tones up the general organization of the concern.

• Variance analysis and reporting is based on the principle of management by exception. The top
management may not be interested in details of actual performance but only in the variations from
the standard, so that corrective measures may be taken in time.

• When constantly reviewed, standards provide means for and encourage action for cost reduction.
Focus on out of control situations, leads to cost reduction through the improved methods, improved
quality of products, better material and workers, effective selection and use of capital resource etc.

• A properly laid down system of standard costing may facilitate the correct implementation of the
technique of budgetary control, which is also a good system of cost control.

Disadvantages of standard costing:

• Establishment of standard costs is difficult in practice. Even though, standards are fixed after
defining properly, there is no guarantee that the standards established will have the same tightness
or looseness as envisaged.

• In the course of time, even in a short period, the standards become rigid. It may not be possible to
maintain the standards to keep pace with the changes in manufacturing conditions. Revision of
standards is costly.

• Sometimes, standards set create adverse effects. If standards are set tightly and there is non-
achievement of the same, it creates frustration.

• The standard costing may not be suitable in all types of organizations, for example:
o Incase of small concerns where the production cannot be properly scheduled. In small
concerns, personal contacts may be more effective than the standard costing.

o In case of industries having the non – standardized products.

o In case of industries having repair jobs, which keep changing as per customer requirements.

o In case of industries where products take more than one accounting period to complete e.g.
Contract jobs.

• Due to the play of random factors, it may be difficult to properly examine the variance and
distinguish between controllable and uncontrollable variances. E.g. Adverse labor time variance may
be due to poor grade of labor, poor quality of material, defective plant and machinery and lack of
trained workers.

Management Accounting Page 12 of 14

 • Lack of interest in standard costing on the part of the management makes the system ineffective
and cant be used as a proper means of cost control.
Comparison of standard costing and budgetary control:

Similarities:

• Both the types of costing are the best possible tools available to the management for the purpose of
controlling the costs.

• Both the techniques involve the process of setting the targets or standards, measurement of actual
performance, comparison of actual performance with targets or standard set, computation and
analysis of variations and the attempts to maintain favorable variations & remove unfavorable
variations.

• The technique of budgetary control can be used effectively if the system of standard costing is
prevailing.

Differences:

• System of budgetary control may be operated even if no standard costing system is in use in the
concern.

• Budgets are the ceilings or limits on expenses above, which actual expenditure should not normally
exceed and if it does, the planned profits will be reduced. Standard costs are minimum targets to be
attained by the actual performance.

• Budgets may be prepared in the various areas of activities like sales, production, purchases, capital
investments etc. Whereas standard costing specifically relates to the function of production and
manufacturing costs.

• A more researching analysis is required to be made in case of standard costing variances than in
case of budgetary control variances. Variances in case of budgets may point out efficiency or
inefficiency. But variance in case of standard costing provides material for further probe and
investigation.

• The scope of standard costing is much wide than that of budgetary control. Adherence to be
budgeted performance may indicate that the business is out of difficulties. A genuine attempt to
attain the standards always provides the scope for the improved performance.

• Budgets are based upon the future or estimated costs, which may be used for forecasting the
requirements of various factors of production like material, labour, finance etc. Standard costs are
planned or ideal costs under the ideal situations as to operating efficiency, capacity level attainment
and so on. Standard costs may not be necessarily useful for forecasting purposes.

Management Accounting Page 13 of 14

Q.No. 13: What do you mean by Uniform Costing.?
Explain the various areas covered by Uniform Costing. ?
Explain the prerequisites for the success of Uniform Costing as a cost control technique.?
Answer:

Uniform Costing: It is the use by several undertakings of the same costing principles and practices. Where
uniform costing is introduced there must be some uniformity in the treatment of expenses and general
accounting procedure. Main feature of uniform costing is that whenever a particular method of costing is
applied it is applied uniformly in a number of concerns in the same industry or even different but similar
industries. This enables cost & the accounting data of the member undertakings to be compiled on a
comparable basis of the performance so that useful & crucial decisions can be taken.

Areas covered by uniform costing: The success of the uniform costing system depends upon the extent to
which uniformity can be brought in various areas. The various areas in which the uniformity can be brought
are discussed below:

• Method of cost accounting to be implemented viz. job costing, process costing, unit costing & so on.

• Costing techniques employed i.e. marginal costing, standard costing etc.

• Methods of pricing the issues from stores. Viz. FIFO, LIFO, Weighted Average and so on.

• Methods followed for valuation of inventories.

• Methods followed for inventory control.

• Methods followed for charging depreciation viz. written down value, straight line etc.

• Methods of remunerating the workers.

• Treatment given to certain specific types of costs like bonus, idle time wages and so on.

• Methods for apportionment and absorption of overheads and treatment given to under or over
absorption of overheads.

• Treatment given to material scrap, wastes, spoilages and defectives.

• Treatment given to research and development costs.

• Definition of the term capacity for setting overhead absorption rates.

• Procedure for classification and codification of accounts.

• Items to be excluded from cost accounts.

Prerequisites for the success of uniform costing:

The success of uniform costing will depend upon the following:

• There should be a spirit of mutual trust & policy of give & take.

• There should be a free exchange of ideas and methods.

• Bigger units should be ready to share with smaller ones, improvements, and achievements of
efficiency and know how.

• There should not be any hiding or withholding of information.

• There should be no rivalry, competition or sense of jealousy among the members.

Management Accounting Page 14 of 14