PRESENTATION BY V.SARADHA

                                   

 

 

 

        

Presentation by :           V. SARADHA

Course :                           PCC

Appearing on :              November 2008

METHODS OF COSTING

 

 

BATCH COSTING:

          

Where the output of the job consists of homogeneous (similar) units, a lot of similar units may be used as a cost unit for ascertaining cost. Such lot or collection of units is called BATCH.

 

It is a form of Job costing, wherein cost is ascertained for a collection/ lot of units called a BATCH. Separate cost sheets are maintained for each batch of products by assigning a batch number.

 

COST PER UNIT = TOTAL COST FOR THE BATCH / NO. OF ITEMS PRODUCED IN THE   BATCH

  

 

 

  

OPERATING COSTING:

 

It is the method of ascertaining the costs of providing/ operating /rendering a service.

 

Applicable to all undertakings that provide services rather than produce commodities. This method is usually adopted in the case of Transport companies. Gas and water works departments, Electricity supply companies, canteens, hospitals, theatres, schools, etc., that are engaged in providing services.

 

Cost units:

 

S. NO.	DETAILS	COST UNIT
1.	Hospitals	Patient Days, Room Days
2.	Hotels	Guest Days, Room Days
3.	Passenger Transport	Kilometers or Passenger Kilometers
4.	Cargo Transport	Quintal Kilometers or Tonne Kilometers
5.	Canteens	No. meals served
6.	Electricity Supply Companies	Kilowatt Hours
7.	Boiler Houses	Quantity of steam raised
8.	Cinema Houses	No. of tickets, No. of shows

 

  

OPERATION COSTING:

 

1. Where a process consists of distinct operations, the method of costing applied is called Operation costing. It is concerned with the determination of the cost of each operation rather than the process.
2. Operation costing is a refinement of Process costing used in industries where processes may not be continuous or where input – output tracing may be possible.
3. Operation costing offers better scope for control. It facilitates the computation of unit operation cost at the end of each operation by dividing the total operation cost by total output units.

                

COST PER UNIT = TOTAL OPERATION COST /  TOTAL OUTPUT UNITS

                 

 

 

 

4. Sometimes operation costing is considered as the basic costing method for standardized output or services. Process costing and service costing are then taken as its sub – methods

 

PROCESS COSTING:

 

Process is a distinct stage in manufacturing or production wherein raw material is converted from one identifiable form into another, before it is finally converted into the saleable final product.

 

Process costing is a method of costing used in industries where the raw material passes through two or more processes before being converted into a final product. It is defined as "a method of cost accounting whereby costs are charged to processes or operations and averaged over units produced".

 

This type of costing method is useful in manufacturing products like steel, soap, chemicals, rubber, vegetable oil, paints and varnish etc., For these products, the production process is continuous and the output of one product becomes the input of the following process till completion.

 

JOINT AND BY PRODUCT COSTING:

 

JOINT COSTING:

 

When a common manufacturing process leaves to the emergence of two or more finished products we would be looking at Joint product and By product costing.

 

When the two products have equal economic significance, they are called Joint Products.

When the two products have different economic significance, the product with higher significance is called main product and the one with a lower significance is called By Product.

  

1.      1. The split of point is a point at which the products emerge as separately identifiable products.

2.      2. Cost incurred before the split of point are known as pre-split of cost and are jointly or commonly incurred on the products.

3.     3.  The cost incurred after the split of point are referred to as post split of cost and are specific cost in nature.

4.      4. The pre split of cost is apportioned and post split of cost is allocated,

 

Principle:

The essence of joint product costing is the distribution of joint cost to the joint products.

 

 BY PRODUCT COSTING:

 

When a manufacturing process results in a production of two or more products and one of the products has greater economic significance than the other. The product with the greater economic significance is called Main Product and the one with the lower significance is called By Product.

 

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