Methods and Techniques of Costing Accountancy by home academy notes by Er. Afzal Ahamed Malik

 

Methods and techniques of Costing

1. 1. Methods and Techniques of Costing by Er. Afzal Ahamed Malik
2. 2. Cost and Costing A ‘Cost’ can be defined as the monetary value spent to acquire something; ‘Costing’ is defined process of ascertaining cost and ‘Cost Accounting’ is the process of accounting and recording of costs. Costs are incurred by both manufacturing and service organizations.
3. 3. Luca Pacioli Father of Cost Accounting
4. 4. Earlier: The Institute of Chartered Accountants of India At present: The Institute of Cost Accountants of India
5. 5. Methods of Costing Specific Order Costing Job Contract Batch Target Continuous Operational Costing Process Single/Output Operating/Service Composite/Multiple 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. Continuous operation costing is used where the goods or services being costed are the result of continuous or repetitive operations or processes. Costs for a financial period are collected for the particular operation or process and divided by the number of units produced in the period to give an average cost per unit.
6. 6. 1. Job Costing: 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. Classification Under Specific order costing methods
7. 7. 2. Contract Costing: 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. Classification Under Specific order costing methods
8. 8. 3. Batch Costing: This is an extension of job costing. A batch may represent a number of small orders passed through the factory in batch. Each batch 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. Classification Under Specific order costing methods
9. 9. 4.Target Costing: In this method, before commencement of job, the cost of work is estimated with the help of experts. This estimated cost is termed as target cost. The contractor is paid commission at a certain percentage on this cost. Classification Under Specific order costing methods
10. 10. Classification under Continuous Operation Costing 1. Process Costing This is suitable for industries where production is continuous, manufacturing is carried on by distinct and well defined processes. Products produced during a particular process are exactly identical. Also known as Average Costing and Continuous Costing.
11. 11. 2. Single/Output Costing: This method is used where the production is uniform consists of only a single product. The cost is ascertained per unit of output. The units are identical to each other and are the standard ones. Where the products manufactured Classification under Continuous Operation Costing
12. 12. Classification under Continuous Operation Costing 3. Operating Costing Operating costing method is one designed to ascertain and control the costs of the undertakings which do not produce products but which render services. Also known as service costing. Operating costing is the cost of rendering services
13. 13. Classification under Continuous Operation Costing 4. Multiple Costing Multiple costing, also known as composite costing, is a type of accounting method used when goods are sold that contain several other processed parts, and these parts are costed differently. Just as the final product needs a cost associated with it, so do each of the parts created by other processes. This is called costing. Each component or part can be, and usually is, costed using a different practice.
14. 14. Techniques of Costing Historical Costing Standard Costing Marginal Costing Direct Costing Absorption Costing Uniform Costing
15. 15. Historical Costing Costing systems where costs and revenues are calculated after the end of the accounting period in which they are incurred. Historical costing permits the accurate calculation of costs afterwards but is of little use for forward planning purposes.
16. 16. Standard Costing A standard cost has been described as a predetermined cost, an estimated future cost and comparing them with recorded actual costs. Standard costs are often a part of a manufacturer's annual profit plan and operating budgets. Suitable where manufacturing is of standardised goods or repetitive in nature.
17. 17. Marginal Costing The marginal cost is calculated as the differentiating between fixed costs and variable costs. It is used to ascertain the effect of changes in volume or type of output on profit.
18. 18. Direct Costing The practice of charging all direct costs to operations, processes or products leaving all other costs to be written off against profits in which they arise is known as Direct Costing.
19. 19. Absorption Costing The practice of charging all costs, both variable and fixed, to operation, processes, and product is known as Absorption Costing.
20. 20. Uniform Costing It can be defined as the use of same costing principles and/or practices by several organisations in an industry for common control or comparison of costs.
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