Different Methods of Costing

Unit Costing: This method also called 'Single output Costing'. This method of costing is used for products which can be expressed in identical quantitative units and is suitable for products which are manufactured by continuous manufacturingactivity. Costs are ascertained for convenient units of output. Examples: Brick making, mining, cement manufacturing, dairy, flour mills etc. Job Costing: Under this method costs are ascertained for each work order separately as each job has its own specifications and scope. Examples: Painting, Car repair, Decoration, Repair of building etc. Contract Costing: Under this method costing is done for big jobs which involves heavy expenditure and stretches over a long period and often it is undertaken at different sites. Each contract is treated as a separate unit for costing. This is also known as Terminal Costing. Construction of bridges, roads, buildings, etc. comes under contract costing. Batch Costing: This methods of costing is used where the units produced in a batch are uniform in nature and design. For the purpose of costing each batch is treated as a job or separate unit. Industries like Bakery, Pharmaceuticals etc. usually use batch costing method. Operating Costing or Service Costing: Where the cost of operating a service such as nursing home, Bus, railway or chartered bus etc. this method of costing is used to ascertain the cost of such particular service. Each particular service is treated as separate units in operating costing. In the case of a Nursing Home, a unit is treated as the cost of a bed per day and for buses operating cost for a kilometer is treated as a unit. Process Costing: This kind of costing is used for the products which go through different processes. For example, manufacturing cloths goes through different process. Fist process is spinning. The out put of spinning is yarn. It is a finished product which can be sold in the market to the weavers as well as use as a raw material for weaving in the same manufacturing unit. For the purpose of finding out the cost of yarn, the cost of spinning process is to be ascertained. The second step is the weaving process. The out put of weaving process is cloth which also can be sold as a finished product in the market. In such case, the cost

of cloth needs to be evaluated. The third process is converting cloth in to finished product such as shirt or trouser etc. Each process is to be evaluated separately as the out put of each process can be treated as a finished good as well as consumed as a raw material for the next process. In such industries process costing is used to ascertaining the cost at each stage of production. Multiple Costing: When the output comprises many assembled parts or components such as in television, motor Car or electronics gadgets, costs have to be ascertained or each component as well as the finished product. Such costing may involve different methods of costing for different components. Therefore this type of costing is known as composite costing or multiple costing. Uniform Costing: This is not a separate method of costing. This is a system of using the same method of costing by a number of firms in the same industry. It is treated as a common system of using agreed principles and standard accounting practices in the identical firms or industry. This helps in fixation of price of the product and inter-firm comparisons.

Uniform Costing: It is the use of same costing principles and practices by several undertakings for common control or comparison of costs. Marginal Costing: It is the ascertainment of marginal cost by differentiating between fixed and variable cost. It is used to ascertain the effect of changes in volume or type of output on profit. Standard Costing: A comparison is made of the actual cost with a pre-arranged standard cost and the cost of any deviation (called variances) is analyzed by causes. This permits the management to investigate the reasons for these variances and to take suitable corrective action. Historical Costing: It is ascertainment of costs after they have been incurred. It aims at ascertaining costs actually incurred on work done in the past. It has a limited utility, though comparisons of costs over different periods may yield good results. Direct Costing: It is the practice of charging all direct costs, variable and some fixed costs relating to operations, processes or products leaving all other costs to be written off against profits in which they arise. Absorption Costing: It is the practice of charging all costs, both variable and fixed to operations, processes or products. This differs from marginal costing where fixed costs are excluded.

1. Uniform Costing When a number of firms in an industry agree among themselves to follow the same system of costing in detail, adopting common terminology for various items and processes they are said to follow a system of uniform costing. In such a case, a comparison of the performance of each of the firms can be made with that of another, or with the average performance in the industry. Under such a system it is also possible to determine the cost of production of goods which is true for the industry as a whole. It is found useful when tax-relief or protection is sought from the Government. 2. Marginal Costing: It is defined as the ascertainment of marginal cost by differentiating between fixed and variable costs. It is used to ascertain effect of changes in volume or type of output on profit. 3. Standard Costing and variance analysis It is the name given to the technique whereby standard costs are pre-determined and subsequently compared with the recorded actual costs. It is thus a technique of cost ascertainment and cost control. This technique may be used in conjunction with any method of costing. However, it is especially suitable where the manufacturing method involves production of standardized goods of repetitive nature. 4. Historical Costing It is the ascertainment of costs after they have been incurred. This type of costing has limited utility. 5. Direct Costing It is the practice of charging all direct costs to operations, processes or products leaving all indirect costs to be written off against profits in which they arise.

6. Absorption Costing It is the practice of charging all costs, both variable and fixed to operations, processes or products. This differs from marginal costing where fixed costs are excluded.