Contrac

t
Costing
Presented to :- Prof. Ashok Kumar
Prof. Abhishek Singh
 Introduction 3
Definition as per ICMAI 4
Topics Features
Types 7
5

Question 9

2
 Introduction
Contract costing is one of the methods of job costing and it is also called
terminal costing.
In this, each contract is given a number and the records are maintained
separately.
This method is generally used by builders, construction firms, contractors etc.
The main objective of this method is to identify cost and profit of each unit
separately.

3
 Definition
• Contract costing is that form of specific-order costing which applies where
work is undertaken to customer’s special requirements and each order is of
long-term duration (compared with those to which job costing applies). The
work is usually constructional and in general the method is similar to job
costing.
• Contract costing is essentially a form of job costing. The cost of each
contract is calculated separately. The work mainly involves a constructional
activity. They are of a long duration.

4
Features of
Contract
Costing
Materials:- The bulk of the materials purchased and delivered direct to the
contract site or obtained from the central sores through the requisition slips.
Wages:- The wages which cannot be charges directly to any contract are
treated as indirect wage that require appointment.
Direct wages:- Most of the costs which are normally treated as indirect can be
identified specifically with a particular contract and are charges to it as direct
costs.
Certificate of completion:- The contracts do not pay the full value of the work
certified as complete but retain a certain percent under the terms of the
agreement.

6
Types of
Contracts
7
Cost plus contract:- The value of the contract is ascertained by adding a fixed
margin of profit to the total cost of the contract. The manufacturer is assured of a
certain percentage of profit in advance and is protected against any fluctuations in
the market prices of various cost elements involved in the production. As a result,
the possibility of incurring any loss is eliminated.
Fixed price contract:- The contractor and the contractee both parties agree to a
fixed contract price. The manufacturer is not assured of a percentage of profit in
advance and is not protected against any fluctuations in the market prices of the
various cost element involved in the production.

8
Question
on
Contract
Costing
9
Question
A company's contract ledger shows the following details: Particulars Amount($)

The contract was completed at a contract price of Material Used 76,000

$200,000. The value of the materials and plant returned to
store were $6,000 and $12,000 respectively. The contact Direct Wages 80,000
price was received in full.
Cost of Special
Required: Prepare a contract account and contractee's 20,000
Plant
personal account. Chargeable
7,000
Expenses
Establishment
5,000
Charges

10
Solution
Contract Account
Particulars Amount (in $) Particulars Amount (in $)

To material issued 76,000 By material to store 6,000

By value of plant returned to
To direct wages 80,000 12,000
store
To cost of special plant 20,000 By contractee’s a/c 200,000

To chargeable expenses 7,000

To establishment charges 5,000

To profit & loss a/c 30,000

Total 218,000 Total 218,000

11
 Contractee’s Account

Particulars Amount (in $) Particulars Amount (in $)

To contract a/c 200,000 By bank 200,000

Total 200,000 Total 200,000

12
Thank Presenters:
Varun MBA/45005/22

you
Shakti Singh MBA/45009/22
Rajwardhan Singh MBA/45010/22

13