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Cost unit

Cost unit is a type of cost object representing a quantity or unit of product or service, for which costs are ascertained. Different cost units may be applicable in different situations – it depends on the nature of products and production process. Cost unit is not the same as unit cost. Un

Process costing

Process costing method is a type of costing method that calculates first the costs per a single (production) process. The method is based on the assumption that the outputs of previous process are the material inputs to the following process. As the result, the costs per a single product are ascerta

Reporting the costs of inventory in the financial statements

Costs are usually debited as an expense in the entity´s profit and loss statement. But it is not often the case for costs incurred in the inventory production process. Direct costs, usually together with allocated production indirect costs (production overheads), form the value of various form

Absorption costing

Absorption costing is a type costing method or rather the approach to costing. It is sometimes called as full costing method as it values the product (or jobs, batches, processes etc.) by direct costs and allocated, apportioned and absorbed share of production indirect costs (production overheads)

Contract costing

Contract costing is a type of costing method that calculates the costs for separate contracts. Contracts are “bigger jobs”, typically very expensive that take a long time. It is therefore very similar to job costing method which calculates costs for separate jobs. The difference is tha

Activity based costing (ABC)

Activity based costing (ABC) is costing method, under which all costs are allocated to company activities according to what are the drivers of the activities. Costs are then allocated to products based on product´s consumption of these activities. ABC was developed to overcome the disadvanta

Unit costing

Unit costing method (also known as output or single costing) is a type of costing method that calculates the costs per cost unit, i.e. usually per a single product. It is used if the production process is repetitive and only a few types of similar products are manufactured in masses. Examples of

Batch costing

Batch costing is a type of costing method that calculates first the costs per the entire production batch. Unit costs are then calculated as a division of total batch costs by the production quantity. Batch costing method is used if several identical products are manufactured in a single batch wher

Costing methods and their types

The purpose of costing methods is to determine the cost of a so-called cost object. This is most often cost unit, i.e. usually a single piece of product. In particular, the costing is used to value inventory, for example for the purpose of their proper accounting, product valuation, management of in

Job costing

Job costing is a type of costing method that calculates the costs for separate and unique jobs - often one-off product or service. In other words, each work order is costed separately. Example of a job: development or implementation of a software or tailor-made furniture   Timesheets are of

Costing methods according to the cost types included

Costing methods differ also in the cost types that will be included in the value of inventory (costs of goods sold) and which shall be booked directly to the statement of profit and loss as period costs.   Cost accounting methods include: Full costing or full production costing methods, e

Differences between Absorption costing, Activity Based Costing, Marginal costing and Througput costing

The basic difference between these costing approaches is what costs are assigned to the product. However, Absorption costing method and Activity Based Costing use different approach, but more about it can be found  in separate articles.   Under Throughput costing, only direct material co

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