Product costing methods

Introduction to costing methods
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

These categories and sub-divisions are shown in figure 6.1

Note to figure 6.1:
The dotted line indicates an area of overlap between the two major categories. Although each batch is separate and identifiable and may be different from any other batch, within a given batch there will be a number of identical cost units over which the total batch costs will be averaged. Thus batch costing may have some of the characteristics of specific order and continuous operation costing

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