Methods and Techniques of Costing |Cost Accounting

Methods and Techniques of Costing

Methods and Techniques of Costing plays a very important role in Cost Accounting. But there is a difference between the Methods and Techniques of Costing.

But before knowing the difference, firstly know what are the various Methods and Techniques of Cost Accounting.


Methods of Costing


Methods of costing is used to determine the cost of final product. Every company has different requirements like in their production process, type of products etc. So the methods of costing in Cost Accounting varies from company to company.  But it is majorly divided into two types-

(i) Specific Order Costing Method

(ii) Continuous Operation Costing Method


(i) Specific Order Costing Method


Specific Order Costing Method is used in those companies where the work is done by any specific order, jobs or batches, target. It is divided into 4 types of costing-

  • Job Costing- Job Costing is a type of Costing method in which cost is non-repetitive, non-comparative and for a short period of time. Under this method, costs are determined for each job, work separately. It involves those types of jobs which doesn’t incur every day. For Example- Sanitary, Plumbing, Press Printing etc.

The Next Method of Costing is Contract Costing.


  • Contract Costing- This method of Costing Method is used where the work or job is of big level and for long periods of time. This method of Costing is used in Big Constructions Projects for Highway or Buildings which works for a long period of time. It is mostly taken by Big Contractors, Builders etc.

  • Batch Costing- Batches means the small process orders to produce a product. This type of costing is used in those companies where the work is done in a particular batches like the pharmaceutical companies, biscuits company and a lot more. It is a similar type of job costing.

  • Target Costing– It is a type of costing method used in those companies where the Total Cost is ascertained before starting the process. In this, contractors give the Bid price to get the project. This type of Costing Methods used in Big Tender Projects where the contractors have to give the target cost. That’s why, it is known as Target Costing.

(ii) Continuous Operation Costing Method


Continuous Operation Costing Method is applied in those companies where the goods are produced in large volume process. and masses. In this type of costing method, goods are produced by passing multiple process. This type of Costing Method is divided into 6 costings-


  • Process Costing- This type of Costing Method is used to calculate the costs of the different process to produce a product. In this, Cost per unit of each process is calculated. This type of Costing is used in Paints Company, Refineries, Shampoos, Crude Oil Companies.

  • Single Output or Union Costing-In this type of costing, only cost of a single product is ascertained which firm produced. In simple words, the total Overall Cost of a product is determined in this type of costing.

  • Operational Costing- This type of costing is used in those companies where the production is continuous for a long time. In this type of costing method, costs are calculated for each operation in the process of high volume. In this type of costing, products are identical. For Example- Cement Company, Biscuit Company.

  • Operating Costing- It is a type of Costing methods used by those companies who provide single or multiple services rather than the product. In this Costing method, cost per each service is calculated so as easy to know the cost of all the services and also helps in comparison. For Example-  Banking, Hospitals, Flights etc.

  • Departmental Costing- In this type of Costing Methods, costs are calculated for different departments like Selling, Production, Finance etc. It is helpful to know the cost incurred for each department. That’s why, it is known as Departmental Costing.

  • Multiple Costing- It is a type of Costing Method in which different costing methods are used for the same product. In this, different components are used to produce the final product which are not identical. So, in this Costing Method, costs are calculated for each component of the product. For Example- In Trains, Airplanes.

This is about the Methods of Costing. I hope you have understood about this. So, let’s move to the techniques of the Costing. After the Techniques of Costing, We will discuss the Difference between Methods of Costing and Techniques of Costing.

Also ReadInstallation of Costing System- Concept, Steps and Difficulties


Techniques of Costing

Methods and Techniques of Cost Accounting

There are basically six techniques of Costing that are-

  • Historical Costing- As the name suggests it is the old technique of Costing. In this Costing Technique, costs are calculated after the expenses incurred. It records the past costs which had already incurred.

  • Standard Costing- In this Costing Technique, firstly Standards are determined for the production. After setting standards, the production starts, costs incurred. After the production, firm compare the actual cost and standard costs resulting from those find out the deviations and at last the profitability.

  • Marginal Costing-  In Marginal Costing, additional output is produced to see the overall change in the total output and the profits.

The formula of Marginal Costing is

MC= Sales – Contribution. For Example- Giving Free Toothbrush with the Toothpaste etc.


  • Direct Costing- In this technique of costing, costs are included which are directly associated with the production, labour and expenses.

  • Absorption Costing- Absorption Costing includes the contradiction of the Direct and Indirect Costs, Fixed and Variable Costs, products or process.

This is all about the various Methods and Techniques of Costing or Cost Accounting.

So, Let’s know what the difference is between the Methods of Costing and Techniques of Costing.


Difference between Methods and Techniques of Costing


Basis of DifferenceCosting MethodsCosting Techniques
MeaningCosting methods are used to ascertain the costs of different needs of companies whether for Job, Batch, Process etc.Costing Techniques are used to ascertain and control the cost.
IncludesSpecific order costing Method, Continuous Operation Costing MethodUniform Costing, Absorption Costing, Standard Costing, Marginal Costing.
PurposeTo provide the calculation method of costing according to the needs of company.Provide the way or technique to calculate the costing whether direct costing, uniform costing etc.

I hope You have understood the Difference between the Methods and Techniques of Costing.

If You have any query about the Methods and Techniques of Costing, then please write in the comment section. I will definitely reply to you.

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Also ReadCost Accounting- Meaning, Objectives, Advantages, Limitations, Essentials of Good Costing System

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