CHAPTER ONE
- INTRODUCTION
A costing method is a method of costing which is designed to suit the goods that are processed or manufactured or the way that services are provided. It follows therefore that each firm will have a costing method which has unique features.
Nevertheless, there will be recognizable common features of the costing system of the firm who are broadly in the same line of business.
Conversely, firms employing substantially different manufacturing methods, for example, a food processing and jobbing engineering factory will have distinctly different costing methods as will the huge variety of services organization. It must be clearly understood that whatever costing method is employed, the basic costing principles relating to analysis, allocating and apportionment will be used.
CATEGORIES OF COSTING METHODS
There are two broad categories of product costing methods; namely:
- Specific order costing and
- Continuous operation or process costing.
SPECIFIC ORDER COSTING
This can be defined as the basic costing method applicable where the work consists of separate contracts, jobs or batchs.
In most cases, the job or contract is the cost unit and frequently but not always, the jobs or contracts are different from each other. The main sub-divisions of specific order costing are:
Job costing
Control costing
Batch costing