Method of Costing
Generally the methods to be used for the ascertainment of cost of production in company different from industry to industry.
Methods are primarily depends on the manufacturing process, measuring the company stock and finished product.
Basically there are two methods of costing:-
1.Specific order/Job/Terminal costing, 2.operation/Period/process costing.
1.Specific Order Costing:
This type of costing methods used in the work consists of separate jobs, batches, units or contracts which are fully authorised by the specific order or contract. This type of costing methods include job costing, batch costing and process costing.
Specific order costing is otherwise known as the Job or Terminal costing methods.
2.Operation Costing:
This is the type of costing methods used in which the standardized goods and service are in repetitive and more less continuous operation or cost are charged before being over aged over units produced during the periods. In this type of costing method include Service costing, unit/output costing, operation costing, process costing etc.
Important Methods of Costing with Examples:
All Of The Costing Methods Briefly Discussed Below:-
1.Job Costing
2.Batch Costing
3.Process Costing
4.Unit/output Costing
5.Contract Costing
6.Multiple/Composite Costing
7.Operating/Service Costing
8.Farm Costing
9.Operation Costing
1.Job Costing:
Under the job costing method, cost data are collected separately for each job in order to determine the job cost individually. So separate job cards are used in order to collect and accumulate costs for each job.
In other words the costing method which is used to find out the cost of each job or work order is known as Job Costing.
This costing method is used in different industries like:- printing press, machine tool manufacturing company, foundries, General engineering work/repair shop and decoration etc.
2.Batch Costing:
This Costing method is used where production is done in batches. A batch constitutes a no of small similar orders. Each batch is treated as a cost unit and costs are accumulated separately for it. The cost per batch is determined by dividing the total cost incurred during a period by no.of batches produced during that period.
In other words, the costing method which is used for the ascertained of cost of batch having identical product is known as batch costing.
Generally Batch costing is used in different industries like:- Drug manufacturing, toy manufacturing company, Garments industry, Shoes manufacturing industry, Biscuit manufacturing company and spare parts manufacturing industry etc.
3.Process Costing:
If a product passes through different stages to make its production compute each such stage is known as Process costing. Under process costing, the cost of each process is determined separately by opening respective process accounts.
In other words, the costing method which is used to find out the cost of a product that passes through various stages to become the finished product is called process costing.
Generally Process costing is used in different industries like; Textile industry, Chemical industries, Paper industries, Tannery industries and sugar production industries etc.
4.Unit/Output Costing:
This method of costing is used in such industries where production is continuous and units to be produced are identical. Under this costing, the cost per unit is determined by dividing the total expenditure incurred during a period by the no.of units produced during that period.
In other words the costing method which is used to know the cost of a product where production is continuous and units produced are identical is called Unit/Single output Costing.
Generally Unit/Single output costing methods used in different industries like; Cement manufacturing industry, Mines, breweries, bricks manufacturing company, quarries and oil drilling works etc.
5.Contract Costing:
A contract is nothing but a big job. So, the principle of job costing is applicable to contract costing. Under contract costing cost data are calculated or computed for each contract separately and their cost is determined individually.
In other words, the costing method which is used to find the cost of each construction or engineering work is called Contract Costing.
Generally Contract costing method used in different industries like; Constructional and mechanical engineering Farm, civil engineer, builders and contractors etc.
6.Multuple/Composite Costing:
It refers to the application of more than one method of costing for the same product. It is generally used in industries where no of component parts are separately produced and subsequently they are assembled to make the final product. The components used are different from each other in respect of material used, manufacturing process involved, etc. So it becomes necessary to determine the cost of each component separately.
In other words, the process of applying two or more costing methods combinedly to ascertain the cost of the product is known as Multiple Costing. It is otherwise known as Composite costing.
Generally this type of costing methods are used in different industries like; factories manufacturing cycles, automobiles industries, radios, motor vehicles, typewriters, aeroplanes, television and other complex products etc.
7.Operating/Service Costing:
This type of costing method is used in those industries which give services rather than producing any product.
In other words, the costing method which is used in the industries providing service facilities is called operating or service costing. This method of costing is used to determine the cost of services rendered.
Generally this type of costing methods are used in different industries like; hospital, Banks, power houses, hotels, schools etc.
8.Farm Costing:
This type of costing method helps in calculation of total cost and per unit cost of various activities covered under farming. Farming activities cover agriculture, horticulture, animal husbandry (i.e., rearing of livestocks), poultry farming, pisciculture (i.e., rearing of fish), dairy, sericulture (i.e., silkworm breeding), nurseries for growing and selling of seedlings and plants and rearing of fruits and flowers.
Farm costing method helps to improve the farming practices to reduce cost of production, to ascertain the profit on each line of farming activity which ensures better control by management and to obtain loans from banks and other financial institutions as they give loans on the basis of proper cost accounting records.
In other words, the costing method which is used to calculate total cost and cost per unit of various farming activities is called farm costing.
9. Operation Costing:
This type of costing method helps refinement of process costing. It is suitable where there is mass or repetitive production and products are to be stocked in a semi finished stage. The procedure of costing. But here cost/unit is an operation instead of a process.
Generally this type of costing in different industries like; Manufacturing handles for bicycles, the different operations in machine screws are- stamps, knurl, thread, trim, moulding, polishing etc. This cost of each such operation may be determined separately.