Module IV- (Methods of costing)

Job Costing
It means ascertaining costs of an individual job, work order or
projects separately.
Features of job costing
 Each job is treated as unit.
 A separate job cost sheet is made out for each job.
 The duration of the job is usually a short period.
 A separate working progress ledger is maintained for each job.
 Profit or loss is determined for each job independently.
Advantages of job costing
 It helps to control future cost.
 It helps to ascertain cost and profit of each job.
 It helps in future production planning.
 It helps to distinguish profitable jobs from unprofitable jobs.
 It helps to identify defective works.
 Selling prices of special orders can easily be fixed.
Disadvantages of job costing
 Job costing involves more clerical works.
 It is more expensive
 It does not facilitate cost control.
Job costing procedure
 Receiving enquiry and sending quotations
 Receiving of order
 Production order
 Allotting production order number
 Recording of cost
 Completion of job
 Ascertainment of profit or loss
Job evaluation
It is the assessment of the relative worth of a job within a company.
Job specification
Job specification is a statement of minimum acceptable human
qualities necessary to perform a job properly.
Specific order costing
It is a method of costing applicable where the work consist of
separate jobs of which is authorized by specific order.
Contract Costing
It is a form of specific order costing in which cost are attributed to
individual contracts.
Features of contract costing
 Contracts are generally at large size.
 Contract itself is a cost unit.
 A separate account is maintained for each contract.
 They are normally carried out for long period and completed.
 Common indirect expenses are apportioned over different
contracts.
Work in progress
It is the unfinished contract at the end of the accounting period and
it includes amount of work certified and amount of work uncertified.
Work certified
The sales value of work completed as certified by the architect is
known as work certified.
Work uncertified
It means work which has been carried out by the contractor but has
not been certified by the architect.
Retention money
The unpaid balance of work certified or the amount held back or
retained by contractee is known as retention money.
Difference between job costing and contract costing
Job costing Contract costing
Each job is treated as cost unit. Each contract is treated as cost
unit.
Job work is executed in factory Contract work is executed at the
premises. site of the contract.
 Indirect cost are higher than Indirect cost are lower than
those under contract costing. those under job costing.
Job costing take less time for Contract costing takes more
completion. time for completion.
It is influenced by the individual It is influenced by the specific
condition and general policy of clauses of the contract.
the organization.
Process costing
Process costing is the method of costing used to ascertain the cost of
a product at each process.
Features of process costing
 Production is continuous.
 Products are standardised.
 Products are homogeneous.
 Products passes through two or more process.
 Products are not distinguishable in processing stage.
 The finished products of one process becomes the raw materials
of the subsequent process.
Advantages of process costing
 It is easy to compute average cost.
 It is simple.
 It is less expensive.
 It is possible to ascertain the process cost at short intervals.
Disadvantages of process costing
 Process cost are only historical.
 Difficult to value losses, waste, scrap etc.
 Difficult to value work in progress.
 These are not accurate. It’s only an average cost.
Difference between process costing and job costing
Process costing Job costing
Production is continuous Production according to
customers order.
Production is for stock. Production is not for stock.
Work in progress always exist. Work in progress may or may
not exist.
All units produced are Each job is different.
homogeneous.
There is a regular transfer of There is no such transfer.
cost of one process to another
process.
Each job is separate and Product lose their individual
independent of others. entities as they are
manufactured in a continuous
flow.
Normal process loss
This is the loss which is unavoidable on account of inherent nature of
production process.
Abnormal process loss
Any loss caused by unexpected or abnormal conditions such as plant
break down, substandard material, accident etc. Such loss are called
abnormal process loss.
Abnormal gain
It is the excess of actual production over normal output. It is also
called abnormal effective.
Operating costing
It is the method of costing designed to find out cost of operating or
rendering a service. It is also called service costing.
Continuous operation cost
It is a costing method which is used where the goods or services
being costed are the results of continuous operation or process.
Cost sheet
Cost sheet is a statement showing various components of total cost
of output of a particular product or services produced during a
particular period.
Advantages of cost sheet
 It disclose the total cost and cost per unit of the product.
 It helps in fixing up selling price.
 It helps in formulating definite useful production policy.
 It enable control over cost of production.
 It facilitate comparison.
 It helps in submission of quotations.
Batch costing
It is a method of costing used in concerns that produce goods in
batches. Batch consist of a particular number of identical products.
Cost of each batch is ascertained separately.
Unit costing
It is a method of costing used to ascertain the cost of producing a
unit of output.

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