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Methods of cost accounting signify the systems used to assign cost elements to cost
objects. These are the procedures by which product costs are accumulated.
Different methods of cost determination are used because businesses vary in their
nature and the type of products or services they produce. Two main costing
systems or methods based on actual cost are:  and 

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Job costing is designed to accumulate cost data for a manufacturing firm that
produces goods to specific orders. The features of a job costing are:

1)p Vach job is of a comparatively short duration.

2)p Work is undertaken to customer·s special requirement.
3)p Vach job moves through stages as an identifiable, e.g. repair job in a garage,
and printing orders in a printing press.

The important variants of job costing are: (a) cand (b) 


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It is a method of costing in which each contract is taken as a separate costing unit

for the purpose of cost ascertainment and control. The objective is to find out the
profit and loss on each contract separately. The terms of the contract usually allow
for progress payment during the course of construction. This method is employed
by firms engaged in ship-building, civil-engineering for roads, bridges, dams,
industrial estates, heavy engineering, factory construction, etc.

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It is a form of job costing in which a batch of identical products is taken as the cost
unit. The manufacture of wooden pencils may be by batch so that a batch includes
pencils of different colours, size or lead softness. Other examples include drugs,
cigarettes, footwear, clothes, printing, engineering equipments, etc.

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It is a method of costing in which costs are accumulated by processes. When a

product undergoes a sequence of stage, total and unit costs have to be found for
each stage. The features of process costing are:

1)p Manufacturing activity is carried on continuously.

2)p The output of one process becomes the input of the next process.
3)p Costs flow from one process to the other process.
4)p It is not possible to trace the identify of a particular lot of output to any
particular lot of input.
 )p The end product is usually of identical units.
6)p Joint productivity/by-products occurs in the process.

Vach process is treated as a cost centre and a separate account is opened for it. All
costs relating to a process are debited to its process account. The output passing
through the process is also recorded. The total cost for a period divided by the units
processed in that period gives us the cost per unit in that process. This method is
suitable for chemical work, sugar, paint manufacturers, oil refineries, bottling
companies, breweries, rubber, and tanning industries. The important variants of
process costing are: (a)
 "#"(b) #
(c)
$and (d) " # c#!

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It is a method of costing in which cost is ascertained in convenient units of product

turned out by continuous manufacturing activity. The unit of costing is chosen
according to the nature of product. If the numbers of articles produced are a few,
costs are accumulated for each unit of production, e.g. automobiles in an assembly
plan. In case of bulk production, the unit cost is conveniently fixed, e.g. a tonne of
coal, a gallon of oil, a metre of textile fabric, a bale of cotton, a thousand bricks, a
thousand cigarettes, etc. This method is applied in case of automobiles,
refrigerators, typewriters, television and radio sets, mines and quarries, steel
plants, brick works, paper manufacture, etc.

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Also known as service costing, the method is used where it is desired to find out
the cost of providing a service. Transport undertakings, power supply concerns,
hospitals, canteens, hotels, water works, gas companies, etc. Use this method. The
cost unit that is usually applied is composite in nature e.g. tonne -km, passenger-
km, bed-day, kilowatt-hour, etc.

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Under this method, each operation is treated as a cost centre. Costs are
accumulated in each operation instead of each process. The method is used by
firms engaged in repetitive mass production with continuous flow of work. These
firms could be those engaged in the manufacture of leather products, toys,
bicycles, ceiling fans, weighing machines, etc.

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Multiple Costing is used to calculate the cost of product's units which are produced
after processing in different operations. When units of product transfers from one
operation to another. Its cost is calculated and like this each operation's cost is
calculated. After this, we calculate the total each operation cost.
 or instance, an article passes through five hand operations as follows:

The factory works a 40 hours week and the production target is 600 dozen per
week. Prepare a statement showing for each operation and in total the number of
operators required, the labour cost per dozen and the total labour cost per week to
produce the total target output.

If we know the cost of labour per dozen, first we have to calculate no. of operators
required

Total production target per week = 600 X 12 = 4800

If we divide it with 40 hours, we know production target per hour = 4800 /40 = 180

Now If we want to calculate No. of operator, we will make target production

proportion with time

In first operation = 180 X 1 minutes/ 60 minutes = 4 operators

Total labour cost per week for first operation = 4 workers X 40 hours per week X
0.6 wage rate per hour = Rs. 1170
Total labour cost per dozen = 1170 /600 = Rs. 1.9 per dozen

Like this, we will calculate labour cost per dozen for second, third, fourth and fifth
operation and then we will add all labour cost per dozen in each operation for
finding total cost of labour per dozen in all operations.

In the real world, companies hardly use pure job costing or pure process costing.
They employ a hybrid or a mix of the two systems. What is common is blend of the
two systems, combining the elements of both.  or example, Citizen Company, no
doubt, produce a wide variety of gents and ladies watches on a mass scale. But
within these watches, they make wide distinctions on the basis of jewels, gold
plating, quartz, digital, etc. The same holds good in respect of soft drinks, TV sets,
automobiles, and the like.
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Costing techniques represent the principles or base, which governs cost
computations. These are the mechanics for immediate task on hand of determining
costs. Techniques are not tied down to the methods. The same set of techniques
could be used for job and process costing. Some important techniques are listed
below:

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Also known as full costing or total costing or cost attached. It is a technique

of costing in which all items of costs, irrespective of whether they are fixed or
variable, are absorbed or charged to units of production. The Chartered
Institute of Management Accountants, London, defines the term 2



 as ´the procedure which charges fixed as well as variable overheads
to cost units.µ Here, fixed manufacturing overhead is unitised i.e. averaged
and assigned to products. The result is that not only the cost of goods sold
but the ending inventory levels are also determined by this total cost.

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The Chartered Institute of Management Accountants, London, defines term

—2
2 

 as ´the ascertainment of marginal costs by differentiating
between fixed and variable costs and of the effect on profit of changes in
volume or type of output.µ
It is a technique in which only variable costs are charged to products. It is
based on the fact that fixed costs are incurred on a time basis and should,
therefore, by written off in the period in which they are incurred. In other
words fixed costs are regarded as period costs and charged against the
revenue of the period in which they are incurred. Vnding inventories of WIP
and finished goods are also valued on the basis of variable cost. Marginal
costing is a vital aid to management in decision making.

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It is an important technique of cost control which makes use of standard

costs. Standard costs are the estimates of ¶  2
 

 
under
varying conditions. These are scientifically pre-determined costs which are
fixed in advance of production. Standards are fixed for e ach element of cost
viz. Material, labour, and overheads. The actual costs are compared with the
standard costs to calculate variances. The variances are then analysed into
their causes to fix the responsibility.
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