Different industries follow different methods of costing because of the differences in the nature of their work. The various methods of costing are as follows:
1. Job Costing:
In this case the cost of each job is ascertained separately. It is suitable in all cases where work is undertaken on receiving a customer’s order like a printing press, motor workshop, etc. In case a factory produces a certain quantity of a part at a time, say 5,000 rims of bicycle, the cost can be ascertained like that of a job. The name then given is Batch Costing.
2. Batch Costing:
It is the extension of job costing. A batch may represent a number of small orders passed through the factory in batch. Each batch here is treated as a unit of cost and thus separately costed. Here cost per unit is determined by dividing the cost of the batch by the number of units produced in the batch.
3. Contract Costing
Here the cost of each contract is ascertained separately. It is suitable for firms engaged in the construction of bridges, roads, buildings etc.
4. Single or Output Costing
Here the cost of a product is ascertained, the product being the only one produced like bricks, coals, etc.
5. Process Costing
Here the cost of completing each stage of work is ascertained, like cost of making pulp and cost of making paper from pulp. In mechanical operations, the cost of each operation may be ascertained separately; the name given is operation costing.
6. Operating Costing
It is used in the case of concerns rendering services like transport, supply of water, retail trade etc.
7. Multiple Costing
It is a combination of two or more methods of costing outlined above. Suppose a firm manufactures bicycles including its components; the parts will be costed by the system of job or batch costing but the cost of assembling the bicycle will be computed by the Single or output costing method. The whole system of costing is known as multiple costing.