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  Differences in Costs and Costing Practices

Reasons for differences in costs and costing practices

The requirement for uniform costing arises since the cost structures and procedures, practices and principles of costing different from firm to firm, business to business and industry to industry. The reasons for such types of differences are as follow:

1. Difference in size of business

(a) Because of the difference in the size of business, the division of work differs. In a small concern, various jobs can be handled through one person, when in a large concern; one job can be completed through various persons. This leads to difference in costing problems.

(b) A large concern can afford to have several departments and therefore there are line and staff positions and there is so division of responsibility between them. But in a small concern, the staff positions seldom present, and the line managers have to carry out all responsibilities.

(c) A large concern can use liberal techniques of remuneration to workers, buy costly materials and acquire heavy overheads when a small concern has various limitations in these respects. Though, it does not mean that in a large concern the cost per unit is extremely high. A large concern creates more and therefore the cost per unit might be rather less than that in a small concern.

2. Difference in nature of business

(a) Some concerns are capital intensive needs heavy machinery for implementation the manufacturing operations when others are labour intensive. Therefore the cost will differ. Furthermore, a large concern can mechanise the production system, where a small concern might not find it easy to do so.

(b) Several types of businesses need dissimilar types and size of machines. Furthermore, for done similar operations, several types of machines may be employed. This results in adoption of different costing techniques.

3. Product differentiation

Even if the size, type and nature of business is similar, product separation may cause difference in costs and costing methods.

(a) The type of business might be similar but the product design and quality may different to satisfy individual needs tastes and conditions.

(b) Costs change due to alternative forms of raw materials may be employed by different firms. Cheaper options are available in the market and some concerns might resort to them in an effort to earn more profits, through deteriorating the quality of the product.

(c) Method of remunerating labour might different from concern to concern.

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