The 7 Methods of Costing

Costing is an activity that entails the technique and process of ascertaining costs. As such the methods of analyzing and presenting the costs differ with the nature of business and the activities its is involved in. the common methods of costing include:

1) Job costing

This is a method used where production is not very repetitive in nature such that it consists of distinct jobs and materials and labour costs can be identified by order number(Clinton et al, 2006). This method is common in plants making specialized industrial equipments. Costs are charged to the specific job account opened for the purpose of that particular job.

2) Contract Costing

A job is actual sense a small contract. Hence contract costing is similar to job costing only that it involves large scale jobs(Clinton et al, 2006). It is also referred to as terminal costing. This is particularly the method used by building contractors.

3) Batch Costing

This method involves arranging jobs or orders into batches after taking into account the convenience of producing items(Clinton et al, 2006). The unit cost in this case becomes the cost of the group or batch of similar products instead of a single job or order. This is appropriate for general engineering factories which produce items in batches.

4) Process Costing

This is a method that attempts to charge costs to an item as it passes through different and well defined stages of processing (Friedl et al, 2003). Each process is accounted for separately and it is appropriate in most extractive industries.

5) Departmental Costing

This involves treating the different functional units as the cost centers and thus costs are ascertained from each department (Friedl et al, 2003).

6) Operation Costing

This is employed mostly where services are involved and in this case costs are charged as per the appropriate units of the operation created (Friedl et al, 2003). The cost per unit of service is calculated. This is common in the transport companies.

7) Unit Costing

This method ascertains cost per unit of output and each element constituting the cost obtained is determined. Using this method, cost sheets are prepared and expenses are classified. Then the total expenditure is divided by the total quantity of units produced so as to get the cost per unit.

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