Type of cost acounting
Types of Cost Accounting
Types of cost accounting are studied under the following three heads-
1. Systems of costing,
2. Methods costing,
3. Techniques of costing.
Systems of Costing
The systems of cost accounting can be divided into two main parts. These can be explained as follows-
(1) Historical costing-In this system, when the manufacturing work is completed and all the expenditures are met,then the various costs are found out on the basis of the actual expenditure and then it is compared with the actual expenditure of the previous year and the reasons for the differences are checked and analysed. In this way, the system of finding out costs on the basis of actual expenditure is known as historical costing or actual cost accounting system.
(2) Estimated costing-Generally this system of cost accounting is used for accounting. In this system, material direct, labour and overhead expenditures are estimated on the
basis of previous years and necessary arrangemen justments are done according to the prevailing or present prices and the costs are found out. In this method, the total cost and per unit cost of production is found out before production begins. The producer is easily able to make future plans related to production on the basis of this information. In the present commercial scenario, the producer has to present the tender price many times before producing the good. It is on the basis of this tender price that the purchaser takes the decision of purchasing the good, and it is possible only through this system that the producer can estimate the actual cost and can present a tender at a proper competitive price,
2. Methods of Costing
The methods of costing and determination of costs are different for different groups of industries. Theoretically all these methods are similar but the methods of analysis
and presentation of costs for various industries and for various objectives become different. The various methods ofbcosting are as follows
(1)Unit costing method. This method is applicable in those firms or industries where the work of production goes on continuously and the produced unit is similar or identical. The per unit cost is found out in this method. This is also known as single or output method. This method is used in brick making, digging of mines, cement and paper
mills, cloth mills, flour mills etc. The unit of product sis found out according to the nature of the product, for example, the unit in a coal mine would be per ton or per 1000 bricks in brick making
(2) Job costing method. This method is also known as contract costing method or terminal costing method. This method is generally adopted when the cost of every contract or job is to be found out separately, because in such a situation every contract or job is treated as a separate unit. This method is also used when the production of a commodity is to be done according to a special order placed by the customer. This method is used in construction of buildings, ship building, printing press etc.
(3) Contract costing. This method is adopted in those businesses, firms or industrial institutions where work is done on contract in different places. The builders of buildings, roads, dams etc. use this method in determining costs.This is a larger version of job costing.
4.Process costing – This method is applicable to those industries manufacturing a number of units of output requiring processes. The goods have to undergo various processes before reaching the stage of furnished goods and so the finished goods of the proceeding processes as treated as the raw material for the succeeding process till the completion of production. Sometimes byproducts are also produced during the process of production. This method is
applicable to chemical industries producing. soaps, edible. and non-edible oils. perfumes, rubber, varnish, paints etc.
(5) Operation costing- This method is a modified version of process costing method. In this method, the cost of each operation in the process of production is ascertained. This method is adopted by those industries and firms where mass production of repetitive nature is done or where semi finished goods are required to be kept as stock.
(6) Operating costing. This method is used in businesses which provide public utility like railways, transport companies, electricity and water supply companies,Hotels for lodging, Hospitals etc. The main aim of these
businesses is not profit making but rendering services to the general public. The total cost of providing the service is divided by the total units and Thus, per unit cost is obtained. For example, the railway company finds out the cost per km per traveller, the electricity company, the per unit cost of electricity production and the water supply company, the per gallon cost of water etc.Departmental costing.
7.This method is used by institutions where the production work is done by various departments. In this method of costing, the cost of production in various departments is found out separately. Here the total cost of a department is divided by the total units
manufactured in that department to know the per unit cost of the output. This method is used in departmental warehouses.
(8)by those production houses where various small goods are produced and then these are assembled to produce a particular commodity. These small goods are quite different from one another, but they are complete in themselves as a unit. It
is essential to find out the cost of these small goods, so as to determine the cost of the product that is to be produced
Multiple costing method – This method is used by assembling these small goods. For example, in the production of cycles, typewriters, aeroplanes, motor-cars.