BBM 201 Unit 1, Lesson 2
LESSON 2 METHODS AND TECHNIQUES OF
COSTING
TABLE OF CONTENTS:
2.0 OBJECTIVES
2.1 METHODS OF COSTING
2.2 TECHNIQUES OF COSTING
1
, BBM 201 Unit 1, Lesson 2
2. METHODS AND TECHNIQUES OF COSTING
This lesson will familiarize with the various methods of costing which are used
for the purpose of ascertaining cost as per the nature of industry. It also deals with
the techniques of costing which is applied for specific decision making purposes.
2.0 Objectives
The objective of this lesson is to understand:
Various methods of costing,
Techniques of costing,
2.1 Methods of Costing
As already discussed in the previous lesson that costing is a technique and
process of ascertaining costs. The basic principles of every method of costing are
same but the methods of analyzing and presenting the costs differ with the nature of
business. The methods of costing are as follows:
1. Job Costing
The job costing method is used where production is not repetitive in nature
and consists of separate jobs so that the material and labor costs can be
identified by separate job or order number. This method of costing is very
common in foundries and plants making specialized industrial equipments. In all
these cases, an account is opened for each job and all appropriate expenditure is
charged thereto.
2. Contract Costing
A contract is a big job whereas a job is a small contract. The term is usually
applied where large-scale contracts are carried out. In case of ship-builders,
printers, building contractors etc., this system of costing is used. Job or contract
is also termed as terminal costing. A separate contract account is prepared for
each contract.
3. Cost Plus Costing
In contracts where in addition to cost, an agreed sum or percentage to cover
overheads is charged, the system is termed as cost plus costing. The term cost
here includes materials, labor and expenses incurred directly in the process of
production. The system is used generally in cases where government happens to
be the party to give contract.
2
LESSON 2 METHODS AND TECHNIQUES OF
COSTING
TABLE OF CONTENTS:
2.0 OBJECTIVES
2.1 METHODS OF COSTING
2.2 TECHNIQUES OF COSTING
1
, BBM 201 Unit 1, Lesson 2
2. METHODS AND TECHNIQUES OF COSTING
This lesson will familiarize with the various methods of costing which are used
for the purpose of ascertaining cost as per the nature of industry. It also deals with
the techniques of costing which is applied for specific decision making purposes.
2.0 Objectives
The objective of this lesson is to understand:
Various methods of costing,
Techniques of costing,
2.1 Methods of Costing
As already discussed in the previous lesson that costing is a technique and
process of ascertaining costs. The basic principles of every method of costing are
same but the methods of analyzing and presenting the costs differ with the nature of
business. The methods of costing are as follows:
1. Job Costing
The job costing method is used where production is not repetitive in nature
and consists of separate jobs so that the material and labor costs can be
identified by separate job or order number. This method of costing is very
common in foundries and plants making specialized industrial equipments. In all
these cases, an account is opened for each job and all appropriate expenditure is
charged thereto.
2. Contract Costing
A contract is a big job whereas a job is a small contract. The term is usually
applied where large-scale contracts are carried out. In case of ship-builders,
printers, building contractors etc., this system of costing is used. Job or contract
is also termed as terminal costing. A separate contract account is prepared for
each contract.
3. Cost Plus Costing
In contracts where in addition to cost, an agreed sum or percentage to cover
overheads is charged, the system is termed as cost plus costing. The term cost
here includes materials, labor and expenses incurred directly in the process of
production. The system is used generally in cases where government happens to
be the party to give contract.
2
