This article throws light upon the top three methods of costing. The methods are: 1. Job Costing 2. Process Costing 3. Multiple Costing.

Method # 1. Job Costing:

Job costing is system of costing in which costs are ascertained in terms of specific job or order which are not comparable with each other. The unit of costing in this method is a job or a special work order. The job may consist of a single unit (a ship or a boat) or it may consist of various units of identical or similar products covered under a single work order (e.g. printing of 10,000 books, or painting of 2,000 similar boards).

In this method of costing, each job or work-order is given a number and all costs relating to that job or order are recorded separately for each job. This method of costing is suited to industries engaged in printing, foundry, ship building, engineering, automobile garages, repair shops, made to order articles, building construction, machine tools, locomotives, etc.

Job costing includes the following methods of costing:


(a) Batch Costing:

This method of costing is applied to industries where production is carried on in batches. Under this method, a batch of similar products is regarded as one job and the cost of this complete batch is ascertained. The total cost of the batch is then divided by the total number of units in the batch in order to determine the cost per unit.

This method is particularly suitable for industries engaged in confectionery, toy-making, medicines, readymade garments, spare parts, processed food, components manufacture, hardware articles like bolts, nuts, cycle parts, etc.

(b) Contract Costing or Terminal Costing:


This is a method of costing which is used in case of big jobs spread over a period of time. A contract is a big job and hence the principles of job costing are applied to contract costing. A separate account is kept for each individual contract. This method is also known as terminal costing as the cost can be terminated at some point and related to a particular job. This method of costing is generally applicable to undertakings engaged in building construction, ship-building, construction engineering, civil engineering, mechanical engineering, etc.

(c) Departmental Costing:

When it is desired to ascertain the cost of operating a department or the cost of products turned out by a department, the method of departmental costing is used. For example, in case of large undertakings it is advisable to ascertain the cost of a department so as to allocate it among the various jobs turned out by that department.

Method # 2. Process Costing:

Process costing is the method of costing that is employed by the type of industries where a product passes through different processes, each distinct and well defined, it is desired to know the cost of production at each process.


In order to know the cost at each stage or process of production, a separate account is opened for each process and when the material is transferred from one process to another, the cost incurred upto that process is also transferred to the succeeding process.

This method of costing is most suitable for mass production industries engaged in continuous production of uniform standard product such as textiles, Chemicals, paper, sugar, oil, cement, mining, brewery, paints and varnish, etc.

Process costing includes following methods of costing:

(a) Single output or Unit Costing:


This method of costing is applied where production is continuous and uniform and the industry is engaged in the production of a single product or a few grades of the same product. In this method the total cost is divided by the number of units produced to ascertain cost per unit and it is applied in industries like collieries, quarries, bricks works, oil drilling, paper mills, flour mills, cement manufacturing, textile mills, etc.

(b) Operating Costing:

This method is suitable for the industries which render services rather than manufacture goods. Operating costing is used to ascertain the cost of rendering services such as railways, airways, roadways, hotels, power supply, water supply, etc.

(c) Operation Costing:


Operation costing is a further refinement of process costing and is a system of costing which is used in industries engaged in repetitive mass production. If the manufacture of a product involves a number of operations and not processes, the cost is ascertained for each operation. It is most suitable for engineering industries, toy-making, etc. where mass production is carried on in a repetitive nature.

Method # 3. Multiple Costing:

Multiple Costing represents the application of more than one method of casting in respect of the same product. It is suitable for industries where a number of components are separately manufactured and then assembled to form a finished product such as aeroplanes, automobiles, cycles, machine tools, radios, sewing machines, refrigerators, televisions, typewriters, etc.

In addition to the above methods of costing, the following techniques of costing are used for controlling costs and taking managerial decisions:

(a) Marginal Costing:


It is a technique of ascertainment of marginal cost by differentiating between fixed and” variable cost. It is used to determine the effect of changes in volume on profit.

(b) Absorption Costing:

Absorption costing is the practice of charging all costs, both fixed and variable to products, processes or operations. It differs from marginal costing where fixed costs are not considered to form part of the cost of a product, process or operation.

(c) Direct Costing:


It is the practice of charging direct costs to products, processes or operations. All the indirect costs are to be written off against profits in the period in which they arise.

(d) Uniform Costing:

It is the practice of costing under which several undertakings of the same industry adopt the same costing principles and/or practice. Uniform costing facilitates comparison of cost of different undertakings and helps in control and determination of cost for the industry as a whole.

(e) Standard Costing:

It is a technique of costing under which the cost of a product is determined in advance on certain pre-determined standards, a comparison is made of actual cost with the pre-determined standard cost to find out variances, if any, so as to take corrective action as and when needed.

(f) Cost plus Contracting:


It is a system of cost accounting used for contracts undertaken on the basis of a contract price which includes direct expenses plus an agreed sum or percentage to cover overhead costs and profits.

(g) Historical Costing:

It is system of costing whereby costs are ascertained after they have been incurred. Compared to standard costing, it has a limited utility.