This document discusses various costing methods and techniques. It covers job order costing, contract costing, batch costing, process costing, operating costing, unit costing, operating service costing, and multiple/composite costing. It also discusses standard costing, budgetary control, marginal costing, absorption costing, and uniform costing as techniques of costing. The document provides definitions and explanations of these various costing methods and techniques.

1. Learning Objectives
Methods of Costing: Job Order Costing, contract Costing,
Batch Costing, Process Costing, Operating Costing, Unit
Costing, Operating Service Costing, Multiple or composite
costing. Techniques of Costing: Standard Costing, Budgetary
control, marginal costing, total absorption costing, uniform
costing.
Classification of Cost: direct and indirect costs, fixed, variable
and semi-variable cost, committed and discretionary costs,
Product cost and period costs, controllable and non-
controllable costs, historical costs and predetermined costs,
normal and abnormal costs 1

2. TECHNIQUES OF COSTING
Budgetary control
Standard costing
Marginal costing
Total absorption costing
Uniform costing
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3. Budgetary control -Budget
A budget is an anticipated financial
statement of revenue and expenses for
a specified period.
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4. 4

5. Budgetary Control
Budgetary control is a system of
controlling costs through
preparation of budgets.
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6. Budgeting
 Budgeting refers to the formulation of plan
for given period in numerical terms. Thus
budgetary control is a system which uses
budgets as a means for planning and
controlling entire aspects of organisational
activities
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7. Budgetary Control
 George R. Terry has defined budgetary control as
“a process of comparing the actual results with the
corresponding budget data in order to approve
accomplishments or to remedy differences by
either adjusting the budget estimates or correcting
the cause of difference”.
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8. Characteristics of Budgetary Control
(a)Establishment of budget for each
function/department of the organisation
(b)Comparison of actual performance with the
budgets on a continuous basis
(c)Analysis of variation of actual performance
from that the budgeted performance to know
the reasons 8

9. Characteristics of Budgetary Control
(d) Taking suitable remedial action,
where necessary
(e)Revision of budgets in view of
changes in condition
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10. Advantages of Budgetary Control
Budgetary control fixes targets. Each and every
department is forced to work efficiently to reach
the target. Thus, it is an effective method of
controlling the activities of various departments of
a business unit.
Budgetary control provides a yardstick against
which actual results can be compared.
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11. Advantages of Budgetary Control
In case the performance is below
expectation, Budgetary control makes everyone
accountable for his work, as it defines the
responsibility for performances.
It tells the management as to where action is
required for solving problems without delay.
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12. Advantages of Budgetary Control
Budgetary control is a useful tool in
profit-planning.
It helps in reducing the cost of
production by eliminating the wasteful
expenditure.
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13. Advantages of Budgetary Control
Budgetary control system acts as a
basis for internal audit by providing a
method of continuous appraisal of
performance.
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14. Disadvantages of Budgetary Control
1. The budgets are prepared on the basis of
estimates. If the estimates are wrong, the
budgets will be misleading. Hence, the
success of budgetary control fully depends
upon the degree of accuracy of estimates.
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15. Disadvantages of Budgetary Control
2.Future is uncertain and cannot be predicted
accurately. A budget is prepared for future period.
Hence, the budget does not show reality.
3. The budgets may be revised from time to time
because of changed conditions. If so, it leads to
more administration expenses.
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16. Disadvantages of Budgetary Control
4. Budgets may serve as constraints on
managerial initiative because every employee
tries to achieve the budgeted figures.
5. A small business organization cannot
afford the employment of budgetary control as a
cost control technique since it involves more
expenses.
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17. Disadvantages of Budgetary Control
6. The preparation of budgets requires
specialized staff. Such specialized staff is
not available adequately to the organization.
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18. Standard costing
 Standard – It is used to refer to the
predetermined rate e.g. Rs 10 per unit
 Standard costs - are predetermined cost which
may be used as a yardstick to measure the
efficiency with which actual costs has been
incurred under given circumstance.
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19.  Standard Costing – This is a technique which
uses standards for cost and revenues for the
purpose of control through variance analysis.
Material cost Standard = 50000; Actual 47000
Sales revenue standard = 200000; Actual 210000
There are three main components of standard
costing.
 Direct Material Cost
 Direct Labour Cost
 Overheads – aggregate of indirect material,
indirect labour and indirect expenses
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20. Definition of Standard Costing
“Standard costing is a method of ascertaining
the cost whereby statistics are prepared to
show : (a) the standard costs ;(b) the actual
costs ; (c) the difference between these costs;
which is termed as variance”. --- H. J. Wheldon
Material cost Standard 50 per kg
Actual cost was 60
Variance 10 per kg
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21. Standard costing involves the following
steps:
 Setting standard costs for different elements
of costs 50 per kg
 Recording of actual costs Rs.60 per kg
 Comparing between standard costs and actual
costs to determine the variances 10A
 Analyzing the variances to know the causes
 Reporting the analysis of variances to
management for taking appropriate actions
wherever necessary
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22. OBJECTIVES OF STANDARD COSTING
Increase in efficiency & productivity
 Cost control
 Determination of responsibility
Supplement to budgetary control
 Information to the management
 Progressiveness of management 22

23. CHARACTERISTICS OF STANDARD COSTING
• Determination of standards
•Computation of actual cost
•Comparison of standard & actual costs
•Computation of variances
 Ascertainment of reasons of variances
 Study of options
 Presentation of report to the management
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24. ADVANTAGES OF STANDARD COSTING
Elimination of the weakness of
historical costing
 Simple & economical
Cost control
 Comparability
Basis of valuation of stock
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25. ADVANTAGES OF STANDARD COSTING
increase in efficiency
 Basis of incentive wage system
Facilitates production planning
Determination of responsibility
Basis of price fixation
 Helpful in budgetary control
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26. LIMITATIONS OF STANDARD COSTING
Unsuitable for concerns dealing in non-
standardized products
 Difficulties in setting up standards
 Not suitable for small firms
 Difficulty in fixing responsibility
 Changing business conditions
 Need of budgetary control
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27. Differences
Standard costing Budgetary Control
The costing method in
which evaluation of
performance and
activity is done by
making a comparison
between actual and
standard costs, is
Standard Costing.
Budgetary Control is
the system in which
budgets are prepared
and continuous
comparisons are made
between the actual and
budgeted figures to
achieve the desired
result.
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28. Differences
Standard costing Budgetary Control
It is limited to cost
details.
It includes cost and
financial data.
Unit Concept Total Concept
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29. Marginal costing
 A costing and decision-making technique
that charges only the marginal costs to the
cost units and treats the fixed costs as a
lump sum to be deducted from the total
contribution, in obtaining the profit or loss
for the period.
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30. Marginal Costing
Marginal costing is concerned with
marginal cost only. Under marginal
costing technique, cost of production
comprises of variable costs only. As such
the valuation of the finished goods and
work-in-progress is made on the basis of
variable costs only. 30

31. Marginal Cost
 The term marginal cost implies the
additional cost involved in producing an
extra unit of output.
 Marginal Cost is defined as, ‘ the change in
aggregate costs due to change in the volume of
production by one unit.
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32. Formula to Calculate MC
 Marginal Cost = Direct Material
+ Direct Labour + Direct
Expenses + Variable Overheads
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33. Absorption costing
 Absorption costing is also referred to as full
costing. It is a costing technique in which all
manufacturing cost (fixed and variable) are
considered as cost of production and are
used in determining the cost of goods
manufactured and inventories.
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34. Absorption costing-Definition
Absorption costing is- “a principle
whereby fixed as well as variable
costs are allotted to cost units”.
(CIMA-Definition).
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35. The product cost, under absorption costing,
would be calculated as:
Direct Materials
+ Direct Labour
+ Direct Expenses
+ Variable Overhead
+ Fixed Overhead
= Total Product Cost
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36. Uniform costing
It is one of the latest techniques of
costing and cost control. It refers to
acceptance and adherence of identical
costing principles and procedures by all
or many units in the same industry by
mutual agreement.
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37. Uniform costing
In simple words it refers to the system
which is uniformly followed by many
companies of the same industry in
order to benefit comparison and
competition.
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38. Uniform costing - Definition
 CIMA defines uniform accounting as “a
system, using common concepts, principles
and standard accounting practice, adopted
by different entities in the same industry to
facilitate inter-firm comparison.”
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39. Cost Centre
 A cost centre is defined by CIMA of UK as “a location,
person, or item of equipment (or group of these) for
which costs may be ascertained and used for the purpose
of control”. Thus, a cost centre refers to a section of the
business to which costs can be charged. It may be a
location (a department, a sales area), an item of
equipment (a machine, a delivery van), a person (a
salesman, a machine operator) or a group of these (two
automatic machines operated by one workman).
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40.  The main purpose of ascertaining the cost of
a cost centre is control of cost.
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41. Cost Unit
 A cost unit id defined by CIMA as a “unit of product,
service or time in relation to which cost may be
ascertained or expressed”. For example, in a sugar
mill, the cost per tonne of sugar may be ascertained,
in a textile mill the cost per meter of cloth may be
ascertained. Thus ‘a tonne’ of sugar and ‘a metre’ of
cloth are cost units. In short, cost units is unit of
measurement of cost.
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42. Broadly, cost units may be.
 Units of production, e.g., a kilogram of a
chemical, a ream of paper, a tonne of steel, a
metre of cable, etc. or
 Unit of service. E.g., a passenger, a mile, a
cinema seat, a consulting hour, etc.
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43. Methods of costing
 Job Order Costing
 Contract Costing,
 Batch Costing
 Process Costing
 Operating Costing
 Unit Costing
 Operating Service Costing
 Multiple Or Composite Costing.
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44. Thank You
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