Techniques of Cost Accounting
The types and techniques of costing are as follows:
1) Historical Costing: ‘The ascertainment of costs after they have been incurred’ is called Historical costing. Such costs are, therefore, ‘postmortem’ costs as under this method all the expenses incurred on the production are first incurred and them the costs are ascertained.
2) Standard Costing: ‘The preparation and use of standard
costs, their comparison with actual costs and the analysis of variance to their
causes and points of incidence’ is called standard costing.
3) Here the standards are first set and then they are compared with actual performances. The difference between the standard and the actual is known as the variance. The variances are analyzed to find out their causes and also the points or locations at which they occur.
4) Marginal Costing: Marginal Costing involves the
ascertainment of marginal costs and of the effects on profit of changes in
volumes or type of output by differentiating between fixed costs and variable
costs’. The fixed costs are
those which do not change but remain the same, with the increase or decrease in
the quantum of production. The variables costs are those which do change
proportionately with the change in quantum of production.
5) The marginal costing takes into account only the variable costs to
find out ‘marginal costs’. The difference between Sales and Marginal costs is
known as ‘Contribution’ and contribution is an aggregate of fixed costs and
Profit/Loss. So the fixed costs are deducted from the contribution to find out
the profits. Marginal costing is a technique to ascertain the effect on
profits. Marginal costing is a technique to ascertain the effect on profit by
the change in the volume of output or by the change in the type of output.
6) Direct Costing: The practice of charging all direct
cost to operations, process or products, leaving all the indirect costs to be
written off against profits in the period in which they arise is called direct
costing.
7) Absorption Costing: It is the practice of charging all
costs, both variables and fixed, to operations, processes or products. This is
the traditional technique as opposed to Marginal or Direct costing techniques.
Here both the fixed and variables cost is charged in the same manner.
Methods of Cost Accounting
The methods of costing are as follows:
1) Job Costing: The job costing methods are applicable where the
unit of manufacture is one and complete in itself. They include printers, job
foundries, tool manufactures, and contractors, etc.
2) Contract Costing: This method if applied in
undertakings erecting buildings or carrying out constructional works, e.g.,
House buildings, ship building, Civil Engineering contracts. Here the cost unit
is one and completed in itself. The cost unit is a contract which may continue
for over more than a year. It is also known as the Terminal Costing, since the
works are to be completed within a specified period as per terms of contract or
agreement executed by the contractor and contractee.
3) Batch Costing: In this method, a batch of similar or
identical products is treated as a job. Here the unit of cost is a batch of
group of products, costs are collected and analyzed according to batch numbers
and the costs are ascertained batch wise. This method is applied in
pharmaceutical industries where medicines or injections are manufactures batch
wise or in general engineering factories producing components in convenient
batches.
4) Process Costing: Process costing method is applicable to
those industries manufacturing a number of units of output requiring
processing. Here an article has to undergo two or more processes for reaching
the stage of finished goods and succeeding process till completion.
5) Unit costing: This method is also known as single or output
costing. The objective of this method is to ascertain the total cost as well as
the cost per unit. A cost sheet is prepared taking into account the cost of
material, labour and overheads, Unit costing is applicable in the case of
mines, oil drilling units, cement works, brick works and units manufacturing
cycles, radios, washing machines etc.
6) Operating costing: This method is followed by industries
which render services. To ascertain the cost of such services, composite units
like passenger kilometers and tone kilometers are used for ascertaining costs.
For example, in the case of a bus company, operating costing indicates the cost
of carrying a passenger per kilometer.
7) Operation costing: This is a more detailed application of
process costing. It involves costing by every operation. This method is used
where there is mass production of repetitive nature involving a number of
operations. The main purpose of this method is to ascertain the cost of each
operation.
8) Multiple Costing: It is also known as composite costing. It refers to a combination of two or more of the above methods of costing. It is adopted in industries where several parts are produced separately and assembled to a single product.
Also Read: Important Questions for Upcoming Exams
Unit – 1: Basic Concept of Cost Accounting (Part A) and Cost Sheet (Part B)
(These Questions are subject to modification, if necesary. Download DTS Application for complete notes)
Q. What are the advantages and limitations of cost accounting? 2019
Q. “Cost accounting is an essential tool to the Management” –Comment. 2011, 2012
Q. Distinguish and also mention the relationship between
Ø Cost accounting and Financial accounting 2013SN,2016SN, 2018SN
Ø Cost accounting and Management Accounting
Q. Explain the role and functions of cost accountant.
Q. Explain the purposes of classification of costs. Distinguish between direct cost and indirect cost. 2022, 2023
Q. Write Short notes on:
Ø Cost sheet or Statement of Cost 2017SN
Ø 4 Methods of Cost accounting
Ø 4 Techniques of Cost accounting 2019SN
Ø Characteristics of an Ideal Costing System
Or
Unit 1: Part B (Practical)
Practical Problems:
a) Cost sheet focusing on valuation of stock of finished goods, keep in mind expenses ignored in cost accounts, preparation of cost sheet from financial records (refer unit 4 – Reconciliation), profit percentages given on cost price or sale price. Every year
b) Follow 28 solved questions uploaded on my blog
c) Follow examples of BASU AND DAS COST ACCOUNTING BOOK.
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