Methods and Techniques of Costing (Job, Batch, Contract, Process, Operating, Marginal and Standard Costing)
Domain focus
The syllabus distinguishes costing methods (job, batch, contract, process, operating) from techniques (marginal and standard costing). Questions ask which method fits a situation and test contract/process/marginal calculations.
Core rules
- Job costing: customer-specific, separate job cost sheet. Batch costing: identical units in lots; unit cost = batch cost ÷ batch quantity. Contract costing: long-term, work certified/uncertified, retention money, notional profit.
- Process costing: continuous production; normal loss, abnormal loss/gain, equivalent production; cost per equivalent unit.
- Operating costing: services; composite cost unit (passenger-km, tonne-km, bed-day).
- Marginal costing: contribution = sales − variable cost; P/V ratio = contribution ÷ sales; BEP units = fixed cost ÷ contribution per unit; BEP sales = fixed cost ÷ P/V ratio.
- Standard costing: compare standard cost with actual; variances analyse material, labour and overhead.
Worked example
Selling price ₹100; variable cost ₹60; fixed cost ₹40,000. Contribution = ₹40 per unit. BEP = 40,000÷40 = 1,000 units. BEP sales = 1,000×100 = ₹1,00,000. P/V ratio = 40÷100 = 40%. If sales are 1,200 units, margin of safety = 200 units, or ₹20,000.
Traps
Do not use marginal costing for external reporting; do not value abnormal loss at zero; do not calculate contract profit on work uncertified; do not confuse P/V ratio with contribution per unit.