Methods and Techniques of Cost Accounting
Cost accounting is the process of collecting information about the costs incurred by a company’s activities, assigning selected costs to products and services and other cost objects, and evaluating the efficiency of cost usage.
Besides the methods of costing, following are the types of costing techniques which are used by management only for controlling costs and making some important managerial decisions. As a matter of fact, they ate not independent methods of cost finding such as job or process costing but are basically costing techniques which can be used as an advantage with any of the methods discussed above.
(a) Marginal Costing
Marginal costing is a technique of costing in which allocation of expenditure to production is restricted to those expenses which arise as a result of production, e.g., materials, labor, direct expenses, and variable overheads. Fixed overheads are excluded in cases where production varies because it may give misleading results. The technique is useful in manufacturing industries with varying levels of output.
(b) Direct Costing
The practice of charging all direct costs to operations, processes or products and leaving all indirect costs to be written off against profits in the period in which they arise is termed as direct costing. The technique differs from marginal costing because some fixed costs can be considered as direct costs in appropriate circumstances.
(c) Absorption or Full Costing
The practice of charging all costs both variable and fixed to operations. products or processes is termed absorption costing.
(d) Uniform Costing
A technique where standardized principles and methods of cost accounting are employed by a number of different companies and firms is termed as uniform costing. Standardization may extend to the methods of costing, accounting classification including codes, methods of defining costs and charging depreciation, methods of allocating or apportioning overheads to cost centers or cost units. The system, thus, facilitates inter-firm comparisons, the establishment of realistic pricing policies, etc.