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  Costing Methods and Techniques

Introduction to Costing Methods and Techniques

It is essential to understand the variation between the costing methods and techniques. Costing methods are those that assist a firm to calculate the cost of production or services offered by it. Alternatively, costing techniques are those that assist a firm to represent the data in a specific manner so as to make easy the decision making and cost control and cost reduction. Costing methods and techniques are described below.

Methods of Costing:-

The methods of costing are as follow:

As described in the above paragraph, the methods of costing are employed to determine the cost of product or service that is offered through a business organization. There are two main methods of costing. These methods are as follows

I] Job Costing

This method of costing is employed in Job Order Industries in which the production is as per the needs of the customer. In Job Order industries, the production is not on incessant basis; rather it is only while order from customers is get and that too according to the specifications of the customers. Subsequently, each job can be dissimilar from the other one.

II] Process Costing

The techniques of costing generally aim at finding out the cost of a product or service that is offered through the organization. Process Costing is also a technique of costing that is used in those industries in which the production is in constant process that is the output of one process turns into the input of the following process and so on.

Other methods of costing are the variations of these two principle methods. The variations of these types' methods of costing are as follows.

I] Job Costing:

A. Batch Costing - In the job costing, we have observed that the production is according to the orders of the customers and as per to the specifications mentioned through them. Alternatively, batch costing is employed in which units of a product are manufactured in batches and employed in the assembly of the finishing product.

B. Contract Costing- Contract Costing is a method employed in construction industry to carry out the cost and profit of a specific construction assignment. The standards of job costing are also appropriate in contract costing.

II] Process Costing

Operating Costing- Cost Accounting has been conventionally related with manufacturing companies. Though in the current competitive market, cost accounting has been more and more applied in service industries such as insurance companies, banks, transportation organizations, hospitals, passenger transport and railways, electricity generating companies, hotels, road maintenance, road lighting, canteens, educational institutions, port trusts and various other service organizations. The costing method applied in these industries is termed as 'Operating Costing'.

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