Types of costing

Types of costing

1. TYPES OF COSTING

2. UNIFORM COSTING It is the use of same method of costing by a number of firms in the same industry for common control or comparison costs. It is treated as a common system of using agreed principles and standard accounting practices in the identical firms or industry. This helps in fixation of price of the product and inter firm comparisons.

3. MARGINAL COSTING Marginal costing is an approach where variable costs are charged to cost units, but the fixed cost for the relevant period is written off in full against the total contribution for that period. It is used to ascertain the effect of changes in volume or type of output on profit, its main use is in providing relevant information for planning and decision making.

4. STANDARD COSTING Standard costing is the practice of substituting an expected cost for an actual cost in the accounting records. A comparison is made of the actual cost with a pre arranged standard and the cost of any deviation is analyzed by causes.

5. HISTORICAL COSTING When costs are determined in terms of actual costs and not in terms of predetermined standard cost is called historical costing. In this system of cost accounting, costs are determined only after they have been incurred.

6. DIRECT COSTING It only uses variable costs to make decisions. It does not consider fixed costs, which are assumed to be associated with time periods in which they were incurred. This concept is extremely useful for short term decisions, but can lead to harmful results if used for long term decision making.

7. ABSORPTION COSTING It means that all the manufacturing costs are absorbed by the units produced. In other words the cost of a finished unit in inventory will include direct materials, direct labor, and both variable and fixed manufacturing overhead . The absorption costing method is always used for preparing financial accounts.

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