What are the types of Costing?

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Following are the Types of Costing:-

Job Order In job order costing, costs are accumulated by jobs, orders, contracts, or lots. The key is that the work is done to the customer's specifications. As a result, each job tends to be different. For example, job order costing is used for construction projects, government contracts, shipbuilding, automobile repair, job printing, textbooks, toys, wood furniture, office machines, caskets, machine tools, and luggage. Accumulating the cost of professional services (e.g., lawyers, doctors and CPA's) also fall into this category.

Process In process costing, costs are accumulated by departments, operations, or processes. The work performed on each unit is standardized, or uniform where a continuous mass production or assembly operation is involved. For example, process costing is used by companies that produce appliances, alcoholic beverages, tires, sugar, breakfast cereals, leather, paint, coal, textiles, lumber, candy, coke, plastics, rubber, cigarettes, shoes, typewriters, cement, gasoline, steel, baby foods, flour, glass, men's suits, pharmaceuticals and automobiles. Process costing is also used in meat packing and for public utility services such as water, gas and electricity.

Back FlushBack flush costing is a simplified cost accumulation method that is sometimes used by companies that adopt just-in-time (JIT) production systems. However, JIT is not just a technique, or collection of techniques. Just-in-time is a very broad philosophy, that emphasizes simplification and continuously reducing waste in all areas of business activity. JIT systems were developed in Japan and depend on the communitarian concepts of teamwork and continuous improvement. In fact, many of the assumptions, attitudes and practices of communitarian capitalism are included in the JIT philosophy. One of the many goals of JIT systems is zero ending inventory. In a backflush cost system, manufacturing costs are accumulated in fewer inventory accounts than when using the job order or process cost methods. In fact, in extreme backflush systems, most of the accounting records are eliminated. The production facilities are also arranged in self contained manufacturing cells that are dedicated to the production of a single, or similar products. In this way more of the manufacturing costs become direct product costs and fewer cost allocations are necessary. Thus, more accurate costing is obtained in spite of the fact that the cost accumulation method is simplified.

Hybrid, or Mixed MethodsHybrid or mixed systems are used in situations where more than one cost accumulation method is required. For example, in some cases process costing is used for direct materials and job order costing is used for conversion costs, (i.e., direct labor and factory overhead). In other cases, job order costing might be used for direct materials, and process costing for conversion costs. The different departments or operations within a company might require different cost accumulation methods. For this reason, hybrid or mixed cost accumulation methods are sometime referred to as operational costing methods.

Although costing is called by different names one usually ends up in Job/Batch costing.The need is to arrive at the unit cost or the total cost of the batch/job.. The only way to ascertain is by Job costing.Even if you start in a differently  and by different namesthe methods will not change.The only exception to this is Process Costing.

Different industries follow different methods to establish the cost of their product. This varies by the nature and specifics of each business. There are different principles and procedures for performing the costing. However, the basic principles and procedures of costing remain the same. Some of the methods are mentioned below:

• Unit costing
• Job costing
• Contract costing
• Batch costing
• Operating costing
• Process costing
• Multiple costing
• Uniform costing

Here's a breakdown of each different method of costing:

• Unit costing: This method is also known as "single output costing." This method of costing is used for products that can be expressed in identical quantitative units. Unit costing is suitable for products that are manufactured by continuous manufacturing activity: for example, brick making, mining, cement manufacturing, dairy operations, or flour mills. Costs are ascertained for convenient units of output.
• Job costing: Under this method, costs are ascertained for each work order separately as each job has its own specifications and scope. Job costing is used, for example, in painting, car repair, decoration, and building repair.
• Contract costing: Contract costing is performed for big jobs involving heavy expenditure, long periods of time, and often different work sites. Each contract is treated as a separate unit for costing. This is also known as terminal costing. Projects requiring contract costing include construction of bridges, roads, and buildings.
• Batch costing: This method of costing is used where units produced in a batch are uniform in nature and design. For the purpose of costing, each batch is treated as an individual job or separate unit. Industries like bakeries and pharmaceuticals usually use the batch costing method.
• Operating costing or service costing: Operating or service costing is used to ascertain the cost of particular service-oriented units, such as nursing homes, busses, or railways. Each particular service is treated as a separate unit in operating costing. In the case of a nursing home, a unit is treated as the cost of a bed per day, while, for busses, operating cost for a kilometer is treated as a unit.
• Process costing: This kind of costing is used for products that go through different processes. For example, the manufacturing of clothes involves several processes. The first process is spinning. The output of that spinning process, yarn, is a finished product which can either be sold on the market to weavers, or used as a raw material for a weaving process in the same manufacturing unit. To find out the cost of the yarn, one needs to determine the cost of the spinning process. In the second step, the output of the weaving process, cloth, can also can be sold as a finished product in the market. In this case, the cost of cloth needs to be evaluated. The third process is converting the cloth to a finished product, for example a shirt or pair of trousers. Each process that can result in either a finished good or a raw material for the next process must be evaluated separately. In such multi-process industries, process costing is used to ascertain the cost at each stage of production.
• Multiple costing or composite costing: When the output is comprised of many assembled parts or components, as with television, motor cars, or electronics gadgets, costs have to be ascertained for each component, as well as with the finished product. Such costing may involve different methods of costing for different components. Therefore, this type of costing is known as composite costing or multiple costing.
• Uniform costing: This is not a separate method of costing, but rather a system in which a number of firms in the same industry use the same method of costing, using agreed-on principles and standard accounting practices. This helps in setting the price of the product and in inter-firm comparisons..

Different cost accounting techniques are used in different industries to analyze and present costs for the purposes of control and managerial decisions. The generally-used types of costing are as follows:

• Marginal costing: Marginal costing entails the allocation of only variable costs, i.e. direct materials, direct labour and other direct expenses, and variable overheads to the production. It does not take into account the fixed cost of production. This type of costing emphasizes the distinction between fixed and variable costs.
• Absorption costing: In absorption costing, the full costs (that is, both fixed and variable costs) are absorbed into production.
• Standard costing: In standard costing, a cost is predicted in advance of production, based on predetermined standards under a given set of operating conditions. Standard costs are compared with actual costs periodically, and revised to avoid losses due to outdated costing.
• Historical costing: Historical costing, unlike standard costing, uses actual costs, determined after they have been incurred. Almost all organizations use the historical costing system of accounting for costs.