UGC NET Study Notes on Costing Methods and Techniques || Commerce || Management

By J. Suraj|Updated : November 10th, 2020



“Are the methods, process and techniques employed in the ascertainment of cost”. The costing methods are designed differently for each industry in such a way that the cost can be accurately ascertained and with necessary information.

  1. Job costing – “Under job costing costs are collected, accumulated and ascertained for each job, work order for project separately.” This method of costing is applied in those industries where jobs are executed against specific orders. On receiving of a specific order for performing a job, the cost is estimated in the form of direct material, direct labour, direct expenses and overheads for performing the job. eg: Repair of a car, for printing books etc job costing is applied.
  2. Batch Costing – Applied where articles of similar nature are manufactured in definite batches or lots of large numbers. Articles of homogeneous nature are produced in a process. Single unit could not be produced. Batch costing is applied by safety pins manufacturing concern, nails manufacturing unit, nut and bolts manufacturing concerns etc.
  3. Contract costing – "Method applied where work is undertaken based on customer's requirement, and each order is of long duration." Contract costing method is applied in such concern where the job is big and is spread over a long period of time. This method is adopted by builders, civil engineering contractors, mechanical engineering companies etc.
  4. Process costing – Applied by such concerns where the process of production is completed in distinct stages. In such undertaking the output of one process becomes the input of the subsequent process and the value of each process can be determined. Process costing is adopted by oil refining companies, chemical manufacturing companies, paint manufacturing units, cement manufacturing companies etc.
  5. Operation costing (output costing or unit costing or single costing) – This method of costing is applied in such concerns where the process of production is continuous and the output obtained are identical. Industries like furniture, brick works, mines, quarry etc. adopt unit costing method.
  6. Operating costing (Service costing) – This method is applied by concerns which render service. Transport undertakings, power supply concerns, hospital, educational institutions use operating costing methods.
  7. Multiple costing (composite costing) – Refers to the application of two or more methods of costing in respect of the same product. This method of costing is suitable for industries which produce component parts and subsequently assemble into a final product. This method is used by car manufacturing companies, AC manufacturing units, TV manufacturing concerns etc.
  8. Farm costing – This method of costing is applied by farm undertakings such as agricultural concerns, poultry units, cattle undertaking etc. 


“Refers to the different ways of analysis and presentation of costs for the purpose of controlling cost and helping the managerial decisions. “ In other words cost accounting techniques are the different ways of cost analysis and cost presentation.

  1. Marginal Costing – It is the ascertainment of marginal cost by differentiating between fixed and variable cost. Marginal costing indicates the effect of changes in volume of output or type of output on Profit. Under this technique only variable costs are charged to operations and the fixed cost are written off against contribution earned during the period.
  2. Standard costing – Refers to the ascertainment of standard cost and its comparison with the actual cost in order to determine variations and taking corrective actions. Standard cost is the pre-determined cost and this cost accounting technique is used for cost control.
  3. Uniform costing – Refers to the same principle and practice adopted by several undertaking for cost control and cost comparison. This type of cost accounting technique is adopted by holding company type of business.
  4. Direct costing – Refers to a practice of charging all direct cost to operations process and product and writing off all indirect costs against profit earned for the period.
  5. Absorption costing –Practice of charging all variable manufacturing cost and fixed production overheads to operations and writing off administrative, selling and distribution overheads against profit earned for the period.
  6. Historical costing – Ascertainment of cost after they have been incurred. The cost is ascertained only after the completion of the work. 



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