Q.Distinguish between a method of costing and a technique of costing, and name the important techniques of costing.
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Start your 14-day free trial to unlock the full solution →Method vs technique. A method of costing settles the way cost is collected for a particular kind of production — job costing for specific orders, process costing for a continuous flow, unit costing for a single product, and so on. A technique of costing is different: it is the approach or device applied on top of any method, chiefly to control cost and support decisions. The two are used together — for example, a firm may use unit costing (a method) with standard costing (a technique). In short, a method answers 'how is cost collected for this kind of production?', while a technique answers 'what approach do we apply to that cost to control it and use it for decisions?'
Important techniques of costing.
- Historical (actual) costing — ascertaining cost after it has been incurred, from actual figures; useful as a record but of limited use for control while work is in progress.
- Standard costing — predetermined standard costs are set, actual costs compared with them, and the variances analysed to find and correct inefficiencies; a powerful control technique.
- Marginal costing — only variable (marginal) costs are charged to products, fixed costs being treated as period costs; invaluable for pricing, break-even, make-or-buy and special-order decisions.
- Absorption (total) costing — both fixed and variable costs are charged to the product; the basis of the ordinary cost sheet. …
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