Costing systems and techniques pdf

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costing systems and techniques pdf

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Costing Methods and Techniques

Methods to be used for the ascertainment of cost of production differ from industry to industry. It primarily depends on the manufacturing process and also on the methods of measuring the departmental output and finished products. Specific Order Costing is the category of basic costing methods applicable where the work consists of separate jobs, batches or contracts each of which is authorised by a specific order or contract. Job costing, batch costing and contract costing are included in this category.

Operation Costing is the category of basic costing methods applicable where standardized goods or services result from a sequence of repetitive and more or less continuous operations or process to which costs are charged before being averaged over units produced during the period.

Under this method, costs are collected and accumulated for each job, work order or project separately. Each job can be separately identified; so it becomes essential to analyse the cost according to each job. A job card is prepared for each job for cost accumulation. This method is applicable to printers, machine tool manufacturers, foundries and general engineering workshops.

When the job is big and spread over long periods of time, the method of contract costing is used. A separate account is kept for each individual contract. This method is used by builders, civil engineering contractors, constructional and mechanical engineering firms etc. This is an extension of job costing. A batch may represent a number of small orders passed through the factory in batch.

Each hatch is treated as a unit of cost and separately costed. The cost per unit is determined by dividing the cost of the batch by the number of units produced in a batch. This method is mainly applied in biscuits manufacture, garments manufacture and spare parts and components manufacture. As finished products are obtained at the end of each process, it will be necessary to ascertain not only the cost of each process but also cost per unit at each process. A separate account is opened for each process to which all expenditure incurred thereon is charged.

The cost per unit is obtained by averaging the expenditure incurred on the process during a certain period. Hence, this is known as average costing. As the products are manufactured in a continuous process, this is also known as continuous costing. This is suitable for industries where manufacture is continuous and units are identical.

This method is applied in industries like mines, quarries, oil drilling, breweries, cement works, brick works etc. In all these industries there is natural or standard unit of cost. For example, a barrel of beer in breweries, a tonne of coal in collieries, one thousand of bricks in brickworks etc. The object of this method is to ascertain the cost per unit of output and the cost of each item of such cost. Here cost accounts take the form of cost sheets prepared for a definite period. The cost per unit is determined by dividing the total expenditure incurred during a given period by the number of units produced during that period.

This is suitable for industries which render services as distinct from those which manufacture goods. This is applied in transport undertakings, power supply companies, municipal services, hospitals, hotels etc.

This method is used to ascertain the cost of services rendered. There is usually a compound unit in such undertakings, e. It helps in calculation of total cost and per unit cost of various activities covered under farming. Farming activities cover agriculture, horticulture, animal husbandry i.

Farm costing 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. Multiple operation method of manufacture consists of a number of distinct operations.

It refers to conversion cost i. This method takes into consideration the rejections in each operation for calculating input units and cost. The different operations in machine screw are—stamps, knurl, thread and trim. The cost per unit is determined with reference to final output.

It represents the application of more than one method of costing in respect of the same product. This is suitable for industries where a number of component parts are separately produced and subsequently assembled into a final product.

In such industries each component differs from the others as to price, material used and process of manufacture undergone. So it will be necessary to ascertain the cost of each component. For this purpose, process costing may be applied. To ascertain the cost of the final product batch costing may be applied.

This method is used in factories manufacturing cycles, automobiles, engines, radios, typewriters, aeroplanes and other complex products. 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. A comparison is made of the actual cost with a pre-arranged standard cost and the cost of any deviation called variances is analysed by causes. This permits management to investigate the reasons for these variances and to take suitable corrective action.

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. 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.

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. Any of the methods of costing like unit or output costing, service costing, process costing etc.

Difference between Job Costing and Process Costing. Cost Accounting and Financial Accounting Difference.

Methods and Techniques of Costing

Activity-based costing gives the management of an organization a clear picture of the cost drivers and the opportunities to reduce costs Kaplan and Norton, Job Cost Record Template Download. A related article, Monitoring usage and estimated costs describes how to view usage and estimated costs across multiple Azure monitoring features for different pricing models. Sistem Job-Order Costing digunakan untuk perusahaan yang memproduksi bermacam produk selama periode tertentu, selain itu juga dapat digunakan pada perusahaan jasa. The cost accounting system where costs are recorded by individual job versus process costing system.

Costing Methods and Techniques

Despite arguments that traditional product costing and variance analysis operate contrary to the strategic goals of advanced manufacturing practices such as just in time JIT , total quality management TQM , and Six Sigma, little empirical evidence exists that cost accounting practices CAP are changing in the era of continuous improvement and waste reduction. This research supplies some of the first evidence of what CAP are employed to support the information needs of a world-class manufacturing environment. Using survey data obtained from executives of U. Analysis of variance tests ANOVA indicate that most traditional CAP continue to be used in all manufacturing environments, but a significant portion of world-class manufacturers supplement their internal management accounting system with non-traditional management accounting techniques.


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Through increased, reporting requirements and added staff, substantial management cost can be incurred. The aim of the tool is to help in deciding on optimal resource allocation for any construction project with consideration of resource availability and the stakeholder guidance. Discuss the term job costing and process costing systems with examples Job costing systems: The cost object is a unit or multiple units of a distinct product or service called a job. The project undergoes several stages; each and every stage is executed by the workers. The easiest route to take is to download any management plan template, like a business management plan template for example. Cost management is the process by which one plans and manages the budget of a business or project.

In the budget of a child care program, the amount spent on each of the areas listed below should fall within the range given. Cost management system helps in identifying, collecting, classifying and collating information that can be used by managers in planning, controlling and taking decisions to keep costs in the desirable limits. It also provides limited information concerning related programs. It is the process of defining, managing, and reporting Inventory accounting and Manufacturing accounting. Emery, John D.

Cost Accounting – Concept, Objectives, Types & Methods

How a Costing System is Used

A costing system is designed to monitor the costs incurred by a business. The system is comprised of a set of forms, processes, controls, and reports that are designed to aggregate and report to management about revenues , costs, and profitability. The areas reported upon can be any part of a company, including:. The information issued by a costing system is used by management for a variety of purposes, including:. Deciding where to cut costs in the event of a business downturn. Matching actual costs incurred against budgeted cost levels for control purposes.


Everything you need to know about the methods and techniques of costing. The methods or types of costing refer to the techniques and processes employed in the ascertainment of costs.


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