Contract Costing

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Contract closing

a method of costing large projects, where the contracted work will run over several accounting periods

Every organisation will have its own costing system with characteristics which are unique to that particular system. However, although each system might be different, the basic costing method used by the organisation is likely to depend on the type of activity that the organisation is engaged in. The costing system would have the same basic characteristics as the systems of other organisations which are engaged in similar activities. Specific order costing methods are appropriate for organisations which produce cost units which are separately identifiable from one another. Job costing, batch costing and contract costing are all types of specific order costing that you will learn about in this chapter. In organisations which use these costing methods, each cost unit is different from all others and each has its own unique characteristics.

8.2 Job costing
Job costing applies where work is undertaken according to specific orders from customers to meet their own special requirements. Each order is of relatively short duration. For example, a customer may request the manufacture of a single machine to the customer’s own specification. Other examples, this time from service organisations, might be the repair of a vehicle or the preparation of a set of accounts for a client. The job costing method can also be applied to monitor the costs of internal work done for the organisation’s own benefit. For example, job cost sheets can be used to collect the costs of property repairs carried out by the organisation’s own employees, or they may be used in the costing of internal capital expenditure jobs.

8.2.1 Job cost sheets and databases
The main feature of a job costing system is the use of a job cost sheet or job card which is a detailed record used to collect the costs of each job. In practice this would probably be a file in a computerised...
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