Methods of Costing
The method of costing to be adopted depends on the nature of manufacturing activity. There are various methods of costing. They are:
i) Standard costing
ii) Marginal Costing
iii) Job costing
iv) Batch costing
v) Contract or Terminal costing
vi) Single or output costing
vii) Process costing
viii) Operation costing
ix) Departmental costing
x) Multiple costing
xi) Historical costing
i) Standard Costing: Under this technique, standard costs are established even before the actual expenditures are incurred. Then the actual costs incurred are compared with the standard costs and the differences between the two are calculated.
ii) Marginal Costing: The purpose of this type of costing is to study the relationship between cost, volume and profit. It is also called as variable costing or differential costing.
iii) Job Costing: Under this method, work is performed against the individual orders accepted from the customers. A distinct “Job” number is given for each order accepted.
iv) Batch Costing: Where small parts are manufactured in lots, it would be convenient to ascertain the cost of each batch of articles so manufactured. Such type of costing is known as batch costing.
v) Contract or Terminal Costing: This is a method of costing applicable to contractors’ job.
vi) Single or Output costing: Where there is only one product, output costing is adopted. A cost sheet or a production account is drawn, to show the cost of production of the product.
vii) Process costing: If a product passes through different stages of manufacture or processes, the method of costing suitable is process costing. The special feature of this method is the product at the end of a process becomes the raw material for the next process till it reaches the last process.
viii) Operation costing: Under this method, the cost of each operation is calculated. This is suitable for industries in which producing a product requires stages of operation.
ix) Departmental costing: With the help of this method of costing, the cost for each department or section is ascertained.
x) Multiple costing: As the name implies, this is a combination of more than one method of costing.
xi) Historical costing: Just like financial accounting, the costs are ascertained after they are incurred and only the actual costs are taken into account wherever possible.
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