Cost:

Cost is the amount of expenditure attributable to a specified thing or activity

Costing:
Costing is the process and technique of ascertaining cost
Costing = technique of ascertaining cost + process of ascertaining cost
Cost accounting:
The process of accounting for cost from the point at which the expenditure is
incurred or committed to the establishment of its ultimate relationship with the cost
centre and the cost units.(CIMA)
Cost accounting = costing + application of cost control methods + ascertainment of
profitability
Cost accountancy:
The application of costing and cost accounting principles, methods and techniques
to the science, art and practice of cost control and the ascertainment of profitability.
(ICMA Landon)
Cost accountancy = cost accounting + presentation of information to management
for decision making.
 Cost:
Cost is the amount of expenditure attributable to a specified
thing or activity

 Costing:
Costing is the process and technique of ascertaining cost
Costing = technique of ascertaining cost + process of
ascertaining cost

 Cost accounting:
Cost accounting = costing + application of cost control methods
+ ascertainment of profitability

 Cost accountancy:
Cost accountancy = cost accounting + presentation of
information to management for decision making.
Methods of Costing
 Job costing
 Job costing may be defined as a system of costing in
which the elements of cost are accumulated separately
for each job or work order undertaken by an
organisation.
 It is a specific order costing.
 This method of costing is used in Job Order Industries
where the production is as per the requirements of the
customer, consequently, each job can be different from
the other one
 Batch costing
 Batch costing is applied in industries where identical
products are produced.
 Since a large number of them are manufactured
together and pass through the same process of
manufacture, it is convenient to collect their cost of
manufacture together.
 The output of batch consists of a number of units and it
is not economical to ascertain cost of every unit of
output independently
 The procedure is very similar to job costing. Each batch
is treated a job and costs are calculated for total batch.
 Contract costing/Terminal costing
 In contract costing each contract is treated as a cost
unit and costs are ascertained separately for each
contract.
 It is suitable for business concerned with building or
engineering projects or structural or construction
contracts.
 This method is used in Building, Roads, Bridges,
Dams, Engineering projects etc.
 Departmental costing
 Where costs are ascertained department by
department, the method of costing is called
departmental costing.
 This method is followed where the factory is divided in
to number of departments.
 Process costing/Average costing/Continuous
costing
 This method of costing is suitable to industries where
production is undertaken on mass scale and on
continuous basis and raw materials are passed through
two or more distinct processes before completion.
 Single costing/Unit costing/Output costing/single
operation costing
 This method is used when a company produces only
one product in large number on a continuous basis and
when units are identical.
 Unit costing refers to the costing procedure, under
which costs are accumulated and analysed under
different elements of cost and then cost per unit is
ascertained by dividing the total cost by number of
units produced.
 Operating costing/Service costing
 This method is applied to the enterprises which are
engaged in rendering services.
 Operation costing/Detailed process costing
 A manufacturing process may sometimes be sub
divided in to a number of parts.
 Each part is known as operation.
 For example, production of steel Almirah is divided in
to operations such as cutting steel sheet, welding the
body, welding compartments, fixing the door and the
handle and polishing.
 Multiple costing/Composite costing
 When two or more methods of costing are applied in
respect of the same product, it is called multiple
costing.
 This method is used in industries where large number
of components are separately produced and assembled
into a final product.
 Farm costing
 This method is applied to ascertain the cost of
agricultural products.
 Emerging costing approaches
 Back flush costing/Delayed costing/End point costing
 In this method, accounting entries are made on completion of the
manufacture or accounting is delayed till the manufactured
product is sold.
 Target costing
 It is the process of calculating the estimated cost of a product or
services that enables a company to complete in the market in the
long run. Target cost is the maximum allowable cost at a
particular point of time, considering successive stages in a
products lifecycle. It is a market driven standard cost.
 Life cycle costing
 Life cycle costing is a costing approach that considers the sum of
all the costs associated with a project during its operational life. A
product’s life cycle is the time from the new product idea
generation to the point at which customers support is withdrawn.
The life cycle costing was advocated by D.G.Woodward.
 Just In Time (JIT)
 JIT system advocates acquiring just enough resources. It aims at eliminating
waste and continuously improving productivity.
 Business process re-engineering(BPR)
 It involves the fundamental rethinking and radical design of business processes
to achieve dramatic improvements in performance such as cost, quality, service
and speed. It was introduced by Michael Hammer.
 Theory of constraints (TOC)
 E Goldratt and J Cox developed the theory of constraints for assisting production
managers in reducing manufacturing cycle time and operating cost. Every
organisation faces constraints. TOC technique is used to improve speed in the
manufacturing process
 Through put costing
 It is a method of costing in which only direct material costs are charged to
product.
 Activity Based Costing
 ABC costing was developed by Professor Robbin Cooper and Robert S Kaplan of
Harvaed business school. All overheads are apportioned on the basis of activities
consumed by products or jobs.
 It is a cost accounting system that uses cost drivers to assign cost to cost objects
by first tracing cost to activities and then tracing costs from activities to
products.