The special features of contract costing are as detailed below:
The materials purchased directly or issued from the stores or transferred from other contracts are recorded on the debit side of the contract account. The proceeds of surplus material, material returned to stores will appear on the credit side of the contract account. The materials on hand at the end of the year should be revalued and shown on the credit side of the contract account. Sometimes, as per the terms of the contract, the contractor supplies some materials which does not affect the contract price and it should be given as a note to keep account of the quantity received and issued;
The wages of all the workers employed at the contest site are allocated directly to the concerned contract; Direct expenses: All the expenses other than material and wages are charged to the individual contract account as direct expenses as and when they are incurred;
For a particular contract, the expenditure common to more than one contract becomes the overhead/indirect expenses. These indirect expenses such as wages of engineers, surveyors etc. engaged on various contracts are apportioned to different contracts on some reasonable basis such as a percentage of materials used for labor hours.
Plant and machinery: The methods used for charging the contract for use of plant and machinery are as detailed below: i) If the plant is required at the site for a long period of time, the particular contract account is debited with the book value of the plant at the commencement and credited with the depreciated value of the plant at the end of the accounting period; ii)...