Methods and Types of Costing

METHODS OF COSTING
The methods of costing refer to the techniques and processes employed in the ascertainment
of costs. Many methods have been designed to suit the needs of different industries. These
methods can be summarised as follows:
It should be noted that two basic methods of costing are (1) Job costing, and (2) Process
Costing. The other methods discussed below are simply variants of these two methods.
Job Costing:
Under this method, costs are ascertained for each job separately. According to I.C.M.A London
The method of job order costing applies where work is undertaken
to be a job or work
It is suitable for industries like car repairs, printing, foundries, painting and interior designing,
where each job has its own specification.
Contract Costing:
This method is used in case of big jobs described as ‘contracts’. Since this is a variation of job
costing, the principles of job costing are in general applied. The contract work usually involves
heavy expenditure, spreaded over a long period. Each contract is treated as a separate unit for
the purpose of cost ascertainment. Shipbuilding, construction of premises, roads and bridges are
few examples suitable for contract costing.
Batch Costing:
This is also another version of job costing. The cost of batch or group of uniform products is
ascertained under this method. Each batch of products is a unit of cost for which costs are
accumulated. It is generally used in industries like pharmaceuticals, readymade garments, shoes,
toys, bicycle parts, bakery, etc.
Process costing:
A product passes through various stages of production called ‘process’ in some industries. Each
process is different and well defined. The output of one process is used as a raw material for the
next process. Costs are accumulated for each process. To arrive at the unit cost, the total cost
of the process is divided by the number of units. Textile mills, chemical works, sugar mills and
food products may be cited as examples of industries which use this method.
Operating Costing:
This method is used in undertakings, which provide services instead of manufacturing products.
The unit cost is a service unit e.g., in case of buses, the unit of cost is passenger kilometer, and
in case of nursing home, it is per bed per day. It is also called ‘service costing’.
Multiple costing:
This method is an application of more than one method of cost ascertainment in respect of the
same product. Where a produce comprises many assembled parts as in case of motor car,
typewriter etc., costs have to be ascertained for each component as well as for the finished
product. This may involve use of different methods of costing for different component. It is,
therefore, called ‘multiple’ or ‘composite’ costing.
Single, output or unit costing:
This method of cost ascertainment is used when production is uniform and consists of a single or
two or three varieties of the same product. Where the product is produced in different grades,
costs are ascertained gradewise. Since the units of output are identical, the cost per unit is found
by dividing the total cost by the number of units produced. This method is used in mines, brick-
kilns, steel production, floor mills, etc.
TYPES OF COSTING
Method of costing refers to the process and practice of ascertaining costs of product and services.
The type of costing refers to the technique of analysing and presenting costs for the purpose of
control and managerial decisions. The types of costing also known as techniques of costing
generally used are as follows:
Marginal costing:
Separation of costs into fixed and variable (marginal) is of special interest and importance. Under
marginal costing, cost of a product is estimated with out considering fixed cost. This method
allocates only variable costs (direct material, direct labour, direct expenses, and variable
overheads) to production. It is also known as ‘variable costing’.
Absorption costing:
It refers to the conventional technique of costing under which the total costs (fixed and variable)
are charged to products. It is considered to have only a limited application today.
Historical Costing:
It refers to a system of cost accounting under which costs are ascertained only after they have
been incurred. The accounting is done in terms of actual costs and not in terms of predetermined
costs. It is widely applied by many organisations today.
Standard Costing:
This technique connotes the setting up of definite standards of performance in advance. These
standards are expressed in monetary terms. Actual performance is measured against these
standards. The differences are helping the management to initiate corrective actions. This is
believed to be a valuable tool in cost control.
Budgetary Control:
A budget is an estimated results expressed in numerical numbers. Budgetary control is a
technique applied to the control of total expenditure on materials, wages and overhead by
comparing actual performance with planned performance. This technique is also believed to be
another valuable aid in cost control and coordination.

Methods and Types of Costing

Uploaded by

Copyright:

Available Formats

Methods and Types of Costing

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Methods and Types of Costing

Uploaded by

Copyright:

Available Formats

METHODS OF COSTING

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.