Question

Write a brief essay on “costing approach” adopted by various organizations. Use proper examples

Answer 1

Brief note on Costing Approach:

Method of costing refers to a system of cost ascertainment and cost accounting.

Organisations differ in their nature, in the products they produce and the services they offer. Hence there are different methods of costing and are used by different industries.

There are many methods of costing and a few important methods of costing are as below:

Unit Costing : When production are made in different grades, costs are ascertained grade wise. Per unit cost is calculated on the basis of units produced. This is applicable in steel production bricks, mines and flour mills etc.

Job Costing : When work is undertaken for particular customer / job. This method is used in repair shops, printing press and interior decorations.

Contract Costing: When work is based on contract and it may continue for more than a year. It is most suitable for roads, bridge, shop, buildings...

Process Costing: This method is used in mass production industries. The raw material passes through a number of processes upto a completion stage. The finished product of one processes passed through a number of process for next stage. It is used in Chemical factory, Sugar mills..

Service Costing: It is used where services are provided . Eg Hotels, Cinemas, Hospital...

Composite Costing: This method is used where a number of components are manufactured individually and then assembled in a final product such as Scooters, Cars...

Batch Costing: Batch wise costing is done and each batch is cost unit. This method is used in readymade garments, shoes, tyres and tubes..

Operation Costing : This method is used where number of operations are involved. It provides a detailed analysis of costs and ensures greater accuracy and control.

Costing Approach
↓
Specific Order Costing : Basic Costing Methods are applicable	Operations Costing: Costs are charged before being averaged over the units produced
↓	↓
Job Costing	Process Costing
Batch Costing	Service Costing
Contract Costing	Operation Costing
Composite Costing	Unit Costing