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CMA Final · Strategic Cost Management · Uniform Costing and Inter-firm Comparison

A group of five firms adopts uniform costing. The firms differ in how they treat depreciation, with some using straight line and others written down value. What should the uniform costing manual primarily do about this?

The manual should prescribe one common depreciation method and treatment for all members. Uniform costing needs consistent handling of items like depreciation, overheads and stock valuation so cost figures are comparable; leaving methods different or equalising rupee amounts would not achieve this.

  1. AAllow each firm to keep its method but ignore the difference
  2. BPrescribe one common depreciation method and treatment for all member firmsCorrect
  3. CExclude depreciation from all cost statements
  4. DRequire every firm to charge depreciation at the same rupee amount

Explanation

A uniform costing manual specifies common treatment of items such as depreciation, overheads and stock valuation so that costs are comparable. Ignoring differences or excluding depreciation defeats comparability, and equal rupee amounts ignore differing asset bases.

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