A costing method is a method of costing which is designed to suit the goods are processed or manufactured or the way that services are provided. Although each firm will have a costing method which has unique features, there will generally be recognizably common features of the costing systems of firms that belong in the same line of business.
Categories of costing methods
There are two broad categories of product costing methods
a) Specific order costing– this is defined as the basic cost accounting method applicable where work consists of separately identifiable contracts, jobs or batches. The main sub-divisions of specific order costing are:
- Job costing
- Batch costing
- Contract costing
b) Continuous operation costing – this is a costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Operation costing seeks to establish the average cost per unit during a period for a number of identical cost units. The main sub-divisions of operation costing are:
- Process costing
- Service/function costing
JOB COSTING
Introduction
This is a form of order costing which applies in situations where work is executed strictly according to customers‟ specifications. The production process depends upon the number of orders received from customers. As such production is not standardized and the goods manufactured are not for stock but for immediate delivery to the customer once it’s complete in all respects. The purpose of job costing is therefore to estimate the profit made on each job.
Features/characteristics of job costing
1. Each job is dissimilar in nature requiring special treatment hence the operations, processes and sequences may differ from job to job.
2. Production is intermitted i.e. it’s not continuous.
3. Production is undertaken for customer’s orders and not for stock.
4. No selling and distribution expenses are incurred since the customers ordinarily collect their goods in most cases.
5. Each job is treated as a cost unit.
6. The cost of production of every job is ascertained after completion of the job.
7. Each job is distinctively identified by a production order throughout the production stage
Examples of industries that apply job costing.
1. Engineering workshop items.
2. Furniture making.
3. Machine tools making industry etc.
