Summary Methods of Costing

Unit 05 : Methods of Costing
in
1
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Themethodofcost accumulation andidentifying them to productsandservices
dependsuponthenature ofoperations in an enterprise costaccountingprocedure vari
fromonecompany toanother
Astandardmethodofcosting cannotbeusedforall typesof industries
Method
ofcosting indicates a systematic procedure establishedforascertainingcostof a
product job service byusing theprinciplesof costing Acostaccountingmethod is
merely theprocessof collectingandpresentingcosts Manycostingsystems donot fall
neatlyintothecategoryofeitherjob orprocess costing Often systemsusesomefeatures
boththemaincosting systems Hybridcostingsystems
forallthosemethodsthatcombine
thefeaturesofbasiccosting methods
of
Methods c osting

Jobcosting operations Processcosting




If
citing ceiling Esting citing imittig cling eatin's




JobCosting
Thismethod is alsoknown as specificorder costing Production Ordercosting lot
costing etc Theindustries whichmanufacture articles orproducts or renderservices
againstspecificorders useJobcostingmethod forascertaining costperjob orservice
Individualjobsare identifiable andeach separate costcentre Ajobmay
jobbecomes a
ofajob product products contract service or
anyotherspecificorder
consist batchof

AJobcardispreparedforeachjobforcost accumulation Jobcostsheets areprepared
usingtheircostingsystem
Applicability thismethod is applicable toprinters machinetools manufacturers foundaries

, Generalengineering automobilerepairs hops hospitals interiord ecoration etc
adoptthismethod ofcosting
Features productionismade or services are renderedagainstspecificorders
iliiim
ph
job is clearlyidentifiable throughoutproductionprocess
a distinguishing no is allottedtoeachjoborderundertaken
iiii.siiiiinii
jobbecomes a separatecostcentre
each

c p ioneanpaton itiiIIiii
IIiI Iris methodscostingis relatively a labourintensivemethod

ofeachjobs undertakenis determinedseparately
profitorloss
completion

preparation invoice
a by
iiiiiitie
sales
dep Eli.im
costis charged directly to individualjoborders


Advantages limitations

profitorlossforeachindividualjob requiresmore supervision

spoilage detectivework iseasilyidentified expensive tooperate increasedclericalwor

enablesmanagement toknowtrends incost morecalculations possibilityoferrors
toprovidquotationsforsimilarjobs comparison ofcostofajobovertimeca
findingprofitability ratiosofdifferent
jobs bemade if economicchanges takeplace
enablesmanagement totake corrective doesn'tindicateperformance orstandard

steps
forimprovingefficiency in future efficiency
historicalcosting



Objectives


joborderis ascertained separately Thishelpsin findingoutprofit or losson
costofeach
eachindividualjob Itshowsexactlyhowmuch wasspent on a particularjob
Itenables themanagement toknow those jobswhich aremoreprofitable andthose that
are unprofitable It helpsthebusiness seewhichjobsearnwell
Itprovides a basisfordetermining thecostofsimilarjobs undertaken in future It
thushelps in futureproduction planning