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JOB AND CONTRACT COSTING

Made by:
Alisha D’souza – 12SJCCB145
Samuel Nazareth – 12SJCCB170

the proposed or estimated cost of
producing or undertaking something.
Costing

Different types of Costing
Job Costing
Contract Costing
Batch Costing
Unit Costing
Process Costing
Operating Costing
Multiple Costing
Uniform Costing

Meaning of Job Costing
Costing technique used to ascertain cost of a job or
work-order is called job costing. Sometimes, it is also
called "terminal" costing and it includes contract costing.

The term job Costing may be defines as “in job costing,
costs are collected and accumulated according to jobs,
contracts, products or work orders. Each job is treated as
a separate entity for the purpose of costing.

Under this method, cost is collected separately for each
job in their respective job order cost sheet.
Meaning of Contract Costing
A way of providing a quotation for especially large and
long term projects that will usually be performed over a
number of accounting periods.

For example, large civil engineering projects will often
involve a business using contract costing when
estimating the cost of participating in the project.
1. High proportion of direct costs.

2. Low indirect cost.

3. Difficulties of cost control.

4. Surplus material.

5. Each contract takes a long time to complete.
Features of Contract Costing

Meaning of Batch Costing
The identification and assigning of relevant costs incurred
in completing the manufacturing process of a specified
batch of components or items

Each batch is treated separately as an independent unit for
cost purpose.

The batch cost is then used to determine the unit cost of
article produced.

E.g: Bakery, toy manufacturing, readymade garments, etc.

Estimating costs by measuring the amount of work, or
number of units, involved and applying a standard price per
unit.

This method is used to ascertain cost where the production
process is continuous and product can be expressed in
identical quantitative unit.

This method is also called 'output' or 'single output costing'.

This method is suited to industries like brick making, mining,
cement, flourmill, etc.

Meaning of Unit Costing

Meaning of Process Costing
•It is an accounting methodology that traces and
accumulates direct costs, and allocates indirect costs of a
manufacturing process. It assigns average costs to each
unit.

•Type of operating cost

• It is used to ascertain the cost of a product at each
process or stage of manufacture.

Eg : industries producing homogeneous products
• This method of costing is applicable to ascertain
cost of operating a service, such as bus, railways,
water supply, nursing home, etc.
• In such organizations, the unit of cost is a
service unit,
• E.g., passenger-kilometer in case of bus, ton-
kilometer in case of truck, kilowatt- hour for
electric power and patient-day in case of nursing
home, etc. This is also called 'service costing'.

Meaning of operating costing
• Where more than one costing method is used to
ascertain the cost of a product, it is known as multiple
costing. This method is applied where a product
comprises of variety of components separately
produced and subsequently assembled.
• This involves use of different methods of costing for
different components.
• It is also known as 'composite costing'. This is applied
to industries like, motor car, television, radio,
refrigerator, etc.

Meaning of Multiple Costing
• This basically helps in making inter-firm comparison.
• Uniform Costing: It is not a distinct method of costing
when several undertakings start using the same costing
principles or practices, they are said to be following
uniform costing. Different concerns in an industry
should adopt a common method of costing and apply
uniformly the same principles and techniques for better
cost comparison and common good and helps in mutual
cost control and cost reduction.
Meaning of Uniform Costing
Differences between Job and Contracts Costing
Basis Jobs Costing Contracts Costing
Area of work Used for calculating cost
in very small work like
making of specific type of
product.
Used for calculating cost in
very big work like
construction of 10 floors, a
bridge, etc.
Period Short Period Long Period
Account Job account for every job.
Different expenses for
every job.
Contract account for every
contract. Work in progress is
also considered in the form
of Work Certified and Work
Uncertified.

Basis Jobs Costing Contracts Costing
Place of work Done usually inside the
factory
Done at a sight away from
the factory
Calculation of
Profit
Calculated after every
job’s completion
Requires crediting of
profit of incomplete
contracts at the end of
each accounting period
Types of Contracts
1)Fixed Price Contracts

2)Cost Plus Contracts

3)Escalation Contracts

•Contract that provides for a price which normally is
not subject to any adjustment unless
certain provisions (such as contract change, economic
pricing, or defective pricing) are included in
the agreement.

•Also called firm price contract.
Fixed Price Contract

Cost Plus Contract
A cost-plus contract, also termed a cost
reimbursement contract, is a contract where a
contractor is paid for all of its allowed expenses
to a set limit plus additional payment to allow for a
profit.
• It is a contract where the prices of the contract
go up. In this case both, the parties are benefited
as the element of risk is avoided.

Escalation contract
• When a large contact is undertaken, a certain
amount is paid for the work done regularly. The
work done is calculated by supervisors and the
work is termed as certified.

• Work certified is the amount paid to the work
that has been checked and then paid off.

Work Certified
• Work uncertified means work done but not
certified by authority. So, the contractee will cut
some money on the basis of work uncertified
and will keep in his pocket. This will be retention
money.

Work Uncertified

Retention Money
•Payment for a service or product that is withheld
pending the completion of some specified condition.

•The purpose of retention is to ensure that
the contractor properly completes the activities required
of them under the contract.