Costing Methods (Job, Batch, Contract, Process, Service Costing)
Costing methods tests your ability to select and apply job, batch, contract, process and service costing, including work in progress, equivalent units, losses and service cost units. The exam expects method selection to follow the nature of the product or service, not habit.
Core rules
- Job costing accumulates costs by identifiable job. Batch costing averages costs over a batch, and unit cost = batch cost / batch size.
- Contract costing uses contract accounts, work certified, retention, cost to date and foreseeable-loss provisions. Revenue is recognised by stage of completion where the outcome can be estimated reliably.
- Process costing averages cost over equivalent units. Normal loss is expected; its scrap value reduces process cost. Abnormal loss is valued at good-unit cost, while abnormal gain is credited to the process account.
- Service costing uses composite cost units such as cost per patient-day and carries no inventory.
Worked example
A process inputs 1,000 kg costing ₦5,000 and incurs conversion ₦2,000. Normal loss is 10% with scrap value ₦2/kg; actual output is 850 kg. Expected good output = 1,000 - 100 = 900 kg. Net process cost = 5,000+2,000 - (100×2)=₦6,800. Cost per good kg = 6,800/900=₦7.5556. Actual output of 850 kg means abnormal loss is 50 kg, valued at 50×7.5556=₦377.78. The scrap income from normal loss is deducted before calculating good-unit cost; abnormal loss is not given a normal scrap value.
Traps
Deducting abnormal-loss scrap from normal cost; valuing abnormal gain at selling price; treating contract retention as immediate revenue; ignoring equivalent units for closing work in progress; using a single unit for heterogeneous services.