Meaning of Techniques of Costing
The term “Meaning of technique of costing can be used to refer to the specialized techniques or procedures adopted for ascertaining cost of product for certain special purpose under special conditions, and for providing relevant cost data to the management for special purpose of cost control management policy and managerial decisions.
Techniques of costing the main techniques of costing are as follows:
1. What is Absorption Costing
This is a traditional technique. This technique is useful is submitting tender or quotations and in preparing job estimated.
It is the practice of charging all costs, both variable and fixed to operations, processes of product. This differs from marginal costing where fixed cost are excluded.
2. What is Marginal Costing
Marginal costing is the technique of bifurcating the total cost of a product or operation into two classes:
(i) Variable or marginal cost.
(ii) fixed costs, and charging only the variable cost to the product for the purpose of ascertaining its marginal or variable costs and the effect of the changes in volume on profit.
This technique is adopted by concerns where the level of output charges often. This technique is very useful to the management in taking managerial decisions on such matters as the expansion of output, reduction of price in time of competition and depression, product-mix, etc.
It may be booted that variable or marginal costs are those costs which change proportionately with the change in the quantum of output.
Variable or marginal costs are the aggregate of direct material cost, direct wages, direct expenses and variable overheads. Fixed costs refer to those overhead costs which do not change with the change in volume of output, but remain constant.
3. Meaning of Direct Costing
The technique of charging direct costs to operations, processes or products and leaving the indirect costs to be written off against the profits to the period in which they are incurred is known as direct costing.
The technique of direct costing is similar to marginal costing except that some fixed costs also are considered as direct costs and are charged to the individual products.
The techniques is helpful to the management for decision making.
4. Meaning of Different Costing
Differential costing is the technique used by the management to decide about the alternative course of action.
Under this technique a comparison is made between the cost differential and income differential between two or more courses of action and decision in favor of a particular course of action is taken, if it is, on the whole, profitable.
5. Meaning of Standard Costing
Standard costing is the establishment of standard costs and applying them to measure the variances and analyzing the causes of variations with a view to overcome the variances and to maintain maximum efficiency in production.
In other words, it is a special technique under which costs are pre-determined on the basis of scientifically laid down standards for each element of cost, the actual costs are compared with standard costs the variations between the two are noted.
The variances are analyzed to ascertain their causes and corrective action is taken in time to control the factors leading to the variances.
6. Meaning of Uniform Costing
Uniform costing refers to the adoption of the uniform or the same. Costing Principle and Procedures by all concerns engaged in the same line of activity or industry.
For instance, if the same Costing Principles and Practices are adopted by a number of cement factories, the technique is known uniform costing.
This technique is called uniform costing. as uniform Costing Principles and Practices are adopted by all the concerns engaged in the same industry. This technique is, generally, adopted by two kinds of undertakings viz.
(1) Undertaking which operate a number of factories which are controlled by the parent undertaking.
(2) undertakings which are the members of Trade Associations the technique attempts to establish uniform Cost Principles and Practices so that comparison of costs and performances in various undertakings can be made to the common advantages of all the participating units.
It other words, this technique facilitates inter firm comparison through uniform Cost Principles and Practices.
- Meaning of Cost Accounting | Nature and Scope of Cost Accounting
- Cost Accounting | Purpose or Functions of Cost Accounting
- Advantages and Disadvantages of Cost Accounting
- Difference between Cost Accounting and Management Accounting
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
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