Working out the total cost of a product may not be quite as straightforward as it sounds in some industries where different methods of production or operations are used. There are a number of costing methods specifically designed to suit the way a particular product is made or service provided in varying industries and sectors. These costing methods go under various names:

• job costing;
• batch costing;
• contract costing;
• process costing;
• service costing.

Essentially, these five methods derive from only two main forms – job costing or process costing. We now look at the distinguishing features of each costing method.

Job costing

This applies where an individual job is carried out to a customer’s specification, either at the supplier’s premises or at the customer’s premises. Jobbing printing and repairs to domestic appliances are relevant examples. The earlier examples (building up costs to quote a price) illustrated job costing.

Each job is costed as a separate entity and given its own unique job number in the cost coding system. This number is inserted on all prime documents – timesheets, stores issue notes and invoices – so that all direct costs related to each particular job are specifically charged to it. Overheads are added later in line with the recovery methods and recovery rates used by that firm. In this way the total cost of each job is gradually built up until the job is physically completed. This information can all be recorded by computer, but in some firms a job card may accompany the work through its various stages and departments. Resources consumed are logged on to the job card as the work progresses, in the same way as it would be entered on a computer record of the same job number.

Taken From : Accounting for Non-Accountants