Methods of Product Costing
Broad Methods of Product Costing
There are two broad methods of product costing:
1. Job Costing
- Used by firms in:
- Construction industry
- Consulting
- Software
- And many others
- Characteristics:
- Jobs are different and specific to customers.
2. Process Costing
- Used by firms in:
- Automobile
- Cement
- Petrochemical
- And many others
- Characteristics:
- Output units are identical.
- Product goes through different processes before reaching the final stage.
Variations of Job and Process Costing
Customer Costing
- An extension of job costing.
- Suitable for firms with a few large customers.
Batch Costing
- A variation of process costing.
- Suitable for firms in:
- Pharmaceutical
- Food processing
- FMCG industries
Operating Costing
- Discussed during the example of costing a railway service.
- Also a variation of process costing.
Summary of Costing Methods
| Costing Method | Industry Examples | Key Features |
|---|---|---|
| Job Costing | Construction, consulting, software | Jobs are different and specific to customers |
| Process Costing | Automobile, cement, petrochemical | Identical output units; multiple production stages |
| Customer Costing | Large-customer-based firms | Extension of job costing |
| Batch Costing | Pharma, FMCG, food processing | Variation of process costing |
| Operating Costing | Railway services and similar | Another variation of process costing |