Cost Accounting Theory | Method of Cost Accounting | Techniques of Costing
Arjun EP
Method of Cost Accounting
The concept and rules relating to determine the cost of a product is called cost accounting methods or costing. There are different methods of costing:
Job order costing
Unit costing
Process costing
Operating costing
Contract costing
Batch costing
Multiple costing
Job order costing
Job order costing is used in an organization where goods are produced according to specification or the order of the customers.
In this method, goods are not produced at the producers will.
Therefore, there is no similarity in production process.
Each job needs different operation.
The object of job costing is to ascertain the cost of each job separately.
Unit costing
Unit costing is also known by output, single costing, process or operation costing.
This costing method is used in those manufacturing companies where standard or similar products are produced through a single process.
This method is suitable to industries of mines, collieries, breweries, flour mills, brick factories, cement factories, pencils manufacturing etc.
Process costing
Process costing is applied where production is carried on through different stages of processes before a finished product.
It this method, cost of product is ascertained at the stage of every process.
Total cost is found out after completion of production process.
This method is suitable to paper mills, sugar mills etc.
Operating costing
Operating costing is used by the organization which renders services like transport, electricity, hostels, canteens, etc.
Although they do not produce manufactured goods like manufacturing company yet they need to find out cost per unit.
Contract costing
Organization engaged in construction work or contract adopts this method contract costing.
For each individual contract, separate accounts have to be kept.
Basically this type of costing is similar to job costing, but differs on length of time.
Batch costing
Batch costing is used to determine the cost of group of similar product.
It is an extension of job order costing.
A manufacturing company receives number of orders for similar types of goods.
In the method, a batch of similar products is treated as a job.
Multiple costing
It is also known as composite costing.
The use of two or more costing method is known as multiple costing.
This method is adopted in a manufacturing company where varieties of goods are produced separately.
Later, they are assembled into a final product such as radio, TV, computer, aeroplane etc.
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Techniques of Costing
Some of the important techniques of cost accounting are as follow:
Historical costing
Standard costing
Marginal or variable costing
Absorption or full costing
Uniform costing
Direct costing
Historical costing
Historical costing is also known as traditional costing.
Under this technique, costs are determined after they have been incurred.
Standard costing
Under standard costing, production costs are determined in advance.
The standard cost is compared with the actual cost.
The difference between the actual cost and standard cost is termed as variance.
The variances are recorded and causes thereof are investigated.
Then remedial steps are taken.
This system enables for cost control.
Marginal costing
Under this technique, a distinction is made between variable cost and fixed cost.
Only variable costs are charged to cost of production.
Fixed costs are not treated as product cost.
Absorption or full costing
Absorption costing method is also known as full costing.
Under this method, fixed as well as variable cost are determined for cost of production.
Uniform costing
Several organizations of similar nature use uniform costing.
They have same principles and practices.
Generally, hotel industries, banking business etc use uniform costing.
Direct costing
Under direct costing, only the direct expenses are included.
Indirect expenses are exculpated.
This method is also known as variable costing.
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