Methods of Costing

The method of costing to be adopted depends on what you are doing. Now not all of these are applicable but if you wanted, you could use one or more to work out ho much a thing should coat and to what peruse you are trying to coat for. This is one of the most important things you can do when going in to the food industry and I think if you do not understand this then you are looking at problems in the future. The truth is that there is a very thin line between making money and starting to lose money and no matter if you are in manufacturing or in a restaurant you have to get this right or you will find things very hard.

There are various methods of costing some are more applicable to what you are doing than others.  Or to look at how a department is working , or a way of looking at a process as you make some thing from one place to another .Each have a use and give you an idea in to what you are doing and how every thing works in relation to others .

What you do need to know is what every thing costs and how much time it takes to make and how many a minute and so forth.  Now that is the problem if you are making some thing for the first time , you can base it on experience but at the end of the day a cost is only a indication of what you think it might cost and nothing more so what ever you do,  do not take it as written in stone. Also, if you are undertaking to do some thing for a long period of time thing about inflation and adjust fro that.  And in this world of ever increasing prices put a time limit on what ever you cost for any job you do not want to quote for a job today and find out you get it next year and every thing has gone up in price put a month to three month time limit that the quote is valid for .

The main ways of costing any thing are the following. 

Standard costing
Marginal Costing
Job costing
Batch costing
Contract or Terminal costing
Single or output costing
Process costing
Operation costing
Departmental costing
Multiple costing
Historical costing

Standard Costing: Under this technique, standard costs are established even before the actual expenditures are incurred. Then the actual costs incurred are compared with the standard costs and the differences between the two are calculated.

Marginal Costing: The purpose of this type of costing is to study the relationship between cost, volume and profit. It is also called as variable costing or differential costing.

Job Costing: Under this method, work is performed against the individual orders accepted from the customers. A distinct “Job” number is given for each order accepted.

Batch Costing: Where small parts are manufactured in lots, it would be convenient to ascertain the cost of each batch of articles so manufactured. Such type of costing is known as batch costing.

Contract or Terminal Costing: This is a method of costing applicable to contractors’ job.

Single or Output costing: Where there is only one product, output costing is adopted. A cost sheet or a production account is drawn, to show the cost of production of the product.

 Process costing: If a product passes through different stages of manufacture or processes, the method of costing suitable is process costing. The special feature of this method is the product at the end of a process becomes the raw material for the next process till it reaches the last process.

Operation costing: Under this method, the cost of each operation is calculated. This is suitable for industries in which producing a product requires stages of operation.

Departmental costing: With the help of this method of costing, the cost for each department or section is ascertained.

Multiple costing: As the name implies, this is a combination of more than one method of costing.

Historical costing: Just like financial accounting, the costs are ascertained after they are incurred and only the actual costs are taken into account wherever possible.