METHODS & TECHNIQUES OF COSTING
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METHODS & TECHNIQUES OF COSTING

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METHODS & TECHNIQUES OF COSTING Document Transcript

  • 1. METHODS OF COSTING:<br />Different industries follow different methods for ascertaining cost of their products. The method to be adopted by business organisation will depend on the nature of the production and the type of out put.<br />The following are the important methods of costing.<br />Job Costing:<br />Job costing is concerned with the finding of the cost of each job or work order. This method is followed by these concerns when work is carried on by the customers request, such as printer general engineering work shop etc. under this system a job cost sheet is required to be prepared find out profit or losses for each job or work order.<br />Contract Costing:<br />Contract  costing is applied for contract work like construction of dam building civil engineering contract etc. each contract or job is treated as separate cost unit for the cost ascertainment and control.<br />Batch Costing:<br />A batch is a group of identical products. Under batch costing a batch of similar products is treated as a separate unit for the purpose of ascertaining cost. The total costs of a batch is divided by the total number of units in a batch to arrive at the costs per unit. This type of costing is generally used in industries like bakery, toy manufacturing etc.<br />Process Costing:<br />This method is used in industries where production is carried on through different stages or processes before becoming a finished product. Costs are determined separately for each process. The main feature of process costing is that output of one process becomes the raw materials of another process until final product is obtained. This type of costing is generally used in industries like textile, chemical  paper, oil refining etc.<br />Service (Operating) Costing:<br />This method is used in those industries which rendered services instead of producing goods. Under this method cost of providing a service is also determined. It is also called service costing. The organisation like water supply department, electricity department etc. are the examples of using operating costing.<br />Operation Costing:<br />This is suitable for industries where production is continuous and units are exactly identical to each other. This method is applied in industries like mines or drilling, cement works etc. Under this system cost sheet is prepared to find out cost per unit and profits or loss on production.<br />Multiple Costing:<br />It means combination of two or more of the above methods of costing. Where a product comprises many assembled parts or components (as in case of motor car) costs have to be ascertained for each component as well as for the finished product for different components, different methods of costing may be used. It is also known as composite costing. This type of costing is applicable to industries producing motor vehicle, aeroplane radio, T.V. etc.<br />TECHNIQUES OF COSTING:<br />Following are the main types or techniques of costing for ascertaining cost<br />Uniform Costing:<br />It is the use of same costing principles and practices by several undertakings for common control or comparison of costs.<br />Marginal Costing:<br />It is the ascertainment of marginal cost by differentiating between fixed and variable cost. It is used to ascertain the effect of changes in volume or type of output on profit.<br />Standard Costing:<br />A comparison is made of the actual cost with a pre-arranged standard cost and the cost of any deviation (called variances) is analyzed by causes. This permits the management to investigate the reasons for these variances and to take suitable corrective action.<br />Historical Costing:<br />It is ascertainment of costs after they have been incurred. It aims at ascertaining costs actually incurred on work done in the past. It has a limited utility, though comparisons of costs over different periods may yield good results.<br />Direct Costing:<br />It is the practice of charging all direct costs, variable and some fixed costs relating to operations, processes or products leaving all other costs to be written off against profits in which they arise.<br />Absorption Costing:<br />It is the practice of charging all costs, both variable and fixed to operations, processes or products. This differs from marginal costing where fixed costs are exclude.<br />TYPES OF AUDIT<br />Non-Statutory Audit<br />Statutory Audit<br />Complete Audit<br />Final Audit<br />Continuous Audit<br />Special Audit<br />Internal Audit<br />Social Audit<br />
    • Statutory Audit
    A legally required review of the accuracy of a company's or government's financial records. The purpose of a statutory audit is the same as the purpose of any other audit - to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions. For example, a state law may require all municipalities to submit to an annual statutory audit examining all accounts and financial transactions and to make the results of the audit available to the public. The purpose of such an audit is to hold the government accountable for how it is spending taxpayers' money.<br />
    • Non-Statutory Audit
    Non-Statutory Audit are voluntary audits. These audits are not compulsory under any law. Terms and conditions of audit are determined as per agreement between the auditor and proprietor. For e.g: Financial audit of sole traders or partnership firms.<br />Internal Audit<br />Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management control, and governance processes. Internal auditing is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.<br />The scope of internal auditing within an organization is broad and may involve topics such as the efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and compliance with laws and regulations.<br />Internal auditing frequently involves measuring compliance with the entity's policies and procedures. However, internal auditors are not responsible for the execution of company activities; they advise management and the Board of Directors (or similar oversight body) regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds.<br />Publicly-traded corporations typically have an internal auditing department, led by a Chief Audit Executive ("CAE") who generally reports to the Audit Committee of the Board of Directors, with administrative reporting to the Chief Executive Officer.<br />
    • Special Audit
    Under various circumstances, a client may request a special audit of its organization. Commonly, a special audit is conducted to detect and pinpoint potential or suspected irregularities, errors or frauds. Based on our clients’ objectives, we can conduct independent reviews of our clients’ account to ensure total compliance and added peace of mind,<br />Final Audit<br />The Final Audit module is your watchdog to ensure that every unit that is released for shipment has met all production criteria and passed all checks and tests. The system verifies that the proper components were installed at the proper station by a qualified operator using calibrated equipment and that the unit passed all functional and quality test<br />Complete Audit<br />Thorough examination and verification of a company's financial and accounting records, and internal controls that are deemed to be comprehensive or relatively comprehensive depending on the size of the company being audited. Complete audits are more reliable for the portions audited because complete audits will include the audit of subsidiary documents and records as well as supporting documents. Other audits may not be as comprehensive as a complete audit, and while not completely unreliable, they may still leave room for misstatements.<br />Continuous Audit<br />Continuous auditing is the independent application of automated tools to provide assurance on financial, compliance, strategic and operational data within a company. Continuous auditing uses a set of tools to assure the internal control system is functioning to prevent fraud, errors and waste. The “continuous” aspect of continuous auditing and reporting refers to the near real-time capability for financial information to be checked and shared. Not only does it indicate that the integrity of information can be evaluated at any given point of time, it also means that the information is verified constantly for errors, fraud and inefficiencies.<br />Each instance of continuous auditing has its own pulse. The internal management chooses for evaluation depends on the frequency of updates within the accounting information systems. Analysis of the data may be performed hourly, daily, weekly, monthly, etc. depending on the application.<br />Non-financial aspects of continuous auditing might encompass an ongoing assessment program to determine the state of security control effectiveness as a result of changes in an organization's information systems or its environment of operation. Large changes to an organization's security and network infrastructure profile should trigger near real-time monitored events<br />Interim Audit<br />INTERIM AUDIT is an audit conducted during the fiscal year usually as a means of minimizing the work and time involved in concluding the audit after the fiscal year. A corporation might have an interim audit covering the first nine months of the fiscal year so that at the end of the fiscal year most of the auditing will focus on the last three months of the fiscal year thus allowing for a comprehensive audit and early completion of the audit reports. An interim audit does not usually yield any formal reports from the external auditors<br />
    • Social Audit
    Social audit as a term was used as far back as the 1950s. It is a process and not an event. Thus, Social Audit is nothing but understanding, measuring, reporting, and most importantly improving the efficiency and effectiveness of the local governance.India being a welfare state, several programs and policies are implemented for the benefit of people. Politicians and executives are usually the ones who control and implement these policies.  Some policies are common to all and some are special that are meant to benefit the weaker sections of the society.  To implement all such policies, funds are drawn from the state exchequer. The social control over withdrawal and usage of this fund is called Social Audit.<br />