Costing System

  1. By: ahamed bathihi

    The basic method of assigning the cost to the cost unit is known as costing system.Since the organization engages in different activities such as job job manufacturing, batch manufacturing, process manufacturing etc... , therefore each activities an appropriate costing method should be selected. Based on the nature of activities.

    Based on nature of activities undertaken an organization can have their own unique method of costing

    1. Job costing
    2. Batch costing
    3. Contract costing
    4. Service costing
    5. Process Costing
    • ahamed bathihi
      over 6 years ago

      Job Costing

      The costing method used by the organization which engages in one off jobs.

      One off jobs means "a special order undertaken from a customer to meet there own requirement"  eg :- Hair cutting, Tailoring, Painting etc.

      Features of Job costing

      1. Jobs are undertaken according to the specific customer requirement. 

      2. Short time period.

      3. Carried out at the business premises.

      4. Overhead costs are absorbed based on OAR.

      5. Cost will be identified after finalizing the job. 

    • ahamed bathihi
      over 6 years ago

      Batch costing

      Group of similar units which maintains its identify through out one or more stages of production and is treated as a cost unit (Similar types of goods are produce at a given time for separate order in bulk quantity) 

      eg :- Garment products, Car products etc.

      Basically it is used when specific units are too small to cost individually such as "Pannadol".

      Cost accounting is done with each batch separately for that identified a document is maintained for each batch.It is similar to job costing, however here the cost are accumulate for a batch rather than for a unit.

      The cost per unit will be calculated as follows. 

      =Total cost of batch / No of unit produce in batch

    • ahamed bathihi
      over 6 years ago

      Contract costing

      The system of job costing that is applicable relatively large cost units which will have the following features.

      • Jobs are undertaken according to the specific customer requirement.
      • Long time period.
      • Carried out at the customer premises.

      eg :- Building contraction, Ships building, Civil engineering etc.

      Simple cost card method cannot be used here, because it is handled by a separate accounting standard.

      Service costing 

      The costing method used by the organization which engages in service provision.

      eg :- transportation service, Education service etc.

    • ahamed bathihi
      over 6 years ago

      Process costing

      The cost method used by the organization which engaged in continues manufacturing.

      The process manufacturing mean: Converting input into the output continuously through the number of process.

      eg :-Oil refining, Milk production, liquor production etc.

      Features of process costing

      •  It is not undertaken according to the specific customer specification.
      • It is common to see more than one process where output of one process becomes the input of another process.
      • In process costing when transferring output to another process only finish goods are transferred. Therefore there can be uncompleted goods known as working progress (WIP).
      • There may be losses in the process because of the wastage and evaporation.
      • There can be different types of output such as by product, joint product etc.

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