Methods of Costing

Costing refers to allocation of cost to a product which may on the basis of raw material used or on the basis of amount spent for production. There are various methods of costing which are followed by the companies depending on the type of product which it is manufacturing, let’s look at some of them –

1. Job Costing – This method of costing is used in order to ascertain the cost of each job order. A job card is prepared for each job to accumulate costs. The cost of the jobs is determined by adding all the costs against the job when it is completed.

2. Batch Costing – This method of costing is used where small parts of the same type are required to be manufactured in large quantities.

3. Contract Costing – If a job is very big and takes a long time for its completion, then contract costing method is used for calculation of cost. It is used by the construction companies which are engaged in activities like construction of bridges, roads, buildings etc…

4. Process Costing – This method of costing is used in those industries where the production comprises of successive and continuous operations or processes. Here specific units lose their identity in the manufacturing operation. This method of costing is suitable for industries such as pain or chemical industry.

5. Operating Costing – This method of costing is generally made use of by transport companies, canteens, hospitals, theatres, schools etc.., where the cost is dependent on the operation part than production part.

6. Unit Costing – This method of costing is used by those companies who produce only single product. The total production cost is divided by the total number of units produced to get the cost of each product.

Apart from above methods of costing above methods can be used in combination also which is called multiple costing or composite costing.

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