There are 04 types of costing methods that can be identified namely Job Costing Batch Costing Contract Costing Process Costing These types of costing methods are based on the production method that is used and when the production method differs there was a need for customization in the costing method used. These costing methods and respective production method are explained below: Job Costing Job costing was originated through production method “job production” and since job production had [...]

Cost based pricing can be done using 02 methods: Mark up method Margin method Difference between these 02 methods can be illustrated as follows Mark Up Method This is where the company decides to add a percentage of cost as the profit to arrive at the selling price of a product. Mark up can be based on total cost/prime cost/ overheads/production cost or any other cost arises in the organization. Concept is that it should [...]

Illustration Assume that by coincidence two firms have exactly the same costs and revanue, but that M ltd uses a marginal costing approach to valuation of stock-in-trade in its final accounts, whilst F Ltd has an absorption cost approach. Calculate the gross profit for each company for each of ther first three years of operating from the following: All fixed factory overhead is $9000 per annum. Direct labour costs over each of the three years- [...]

Absorption costing is a technique where the goods are valued considering full production cost of the product of the product. When pricing or valuing the stocks goods are values considering only the production cost of the product (I.e. goods are valued considering variable production costs and the fixed production costs. In other words goods are valued based on the full cost of the production.) Absorption cost of a product can be calculated as follows:

Marginal costing is a technique where the goods are valued considering only the variable cost component of the product. When pricing or valuing the stocks goods are values considering only the marginal costs (I.e. goods are valued considering cost that varies in relation to the level of the activity. In other words goods are valued based on the variable cost of the production.) Marginal cost of a product can be calculated as follows:

What is a “Cost” ? The term “cost” can be defined as all expenses that are incurred in relation to a specific item or an activity. It is important to manage cost in order to recover the investment made on a specific activity or a product. What is a “Cost Unit” ? The term “Cost Unit” can be defined as a unit of product or service in relation to which costs are ascertained. As an example [...]