Costing Practices Differences

The need for uniform costing arises because the cost structures and procedures, practices and principles of costing differ from firm to firm, business to business and industry to industry. The reasons for such differences are as under:

1. Difference in size of business

(a) Division of work differs: Due to the difference in the size of business, the division of work differs. In a small concern, several jobs can be handled by one person, while in a large concern; one job can be completed by several persons. This leads to difference in costing problems.

(b) Division of responsibility differs: A large concern can afford to have many departments and hence there are line and staff positions and there is thus division of responsibility among them. But in a small concern, the staff positions rarely exist, and the line managers have to perform all responsibilities.

(c) Level of expenditure differs: A large concern can employ liberal methods of remuneration to workers, buy costly materials and incur heavy overheads while a small concern has several limitations in these respects. However, it does not mean that in a large concern the cost per unit is very high. A large concern produces more and therefore the cost per unit may be rather less than that in a small concern.

2. Difference in nature of business

(a) Methods of manufacture differ: Some concerns are capital intensive requiring heavy machinery for carrying out the manufacturing operations while others are labour intensive. The cost will, therefore, differ. Moreover, a large concern can mechanize the production system, whereas a small concern may not find it easy to do so.

(b) Types of machines differ: Different types of businesses require different types and size of machines. Moreover, for carrying out similar operations, varying types of machines may be used. This results in adoption of different costing procedures.

3. Product differentiation

Even if the size, type and nature of business is the same, product differentiation may cause difference in costs and costing procedures.

(a) Quality of finished product differs: The type of business may be same but the product design and quality may differ to satisfy individual needs, tastes and circumstances.

(b) Quality of raw material: Costs vary because alternative forms of raw materials may be used by different firms. Cheaper substitutes are available in the market and some concerns may resort to them in an attempt to earn more profits, by deteriorating the quality of the product.

(c) Material mix may differ: When different types of materials are to be mixed for manufacturing a product, the proportion of the mixture may differ from concern to concern.

(d) Method of remunerating of labour may differ from concern to concern.

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