What is Costing

Meaning of Costing 

System of calculating the cost is called costing. This cost may be actual or estimated. We know that we go to different steps of production when we produce any product. At every stage of production, we need to calculate the cost of raw material, labor cost and direct and indirect cost. We allocate the different expenses under a system and this system is called costing.


 Suppose, we tell the cost of car is Rs. 5,00,000. But, costing tells us how did we determine Rs. 5,00,000. Suppose, raw material cost of car is Rs. 3,00,000. Labor Cost is Rs. 1,50,000. Other direct and indirect cost is Rs. 50,000. So, our total cost is Rs. 5,00,000. so, costing is different from cost.

Meaning of Costing System 

Costing system is that system in which we calculate different cost with different methods and also monitor cost for reducing wastage and misuse of resources. Read more about costing system at here

Following are the steps for installation of a costing system

1st Step : To Determine the Objectives 

If you want to install a costing system, you need to determine your objectives. A List of objectives should be made.

2nd Step : To Study the Current Working System 

Before installation of a costing system, cost manager should also study the current working system. He should know the current employees' rights and duties. He should know the system of recording the duty time.  He should know the system of calculating the wage and salary. He should know the nature of different expenses of business.

3rd Step : To Make the Structure of Cost Record 

In this step, we make the structure of cost record. We have to fix the structure in which we have to calculate the cost of each production process. It should be simple and as soon as we complete the production steps, our total cost will also be calculated.

4th Step : To Determine the Cost Rates

In costing system, we determine the cost rates. We make a list in which we show all the direct and indirect cost rates.

6th Step : To Organise the Cost Records

There is big role of of organise the cost records in installation of costing system. We can classify these records with following ways.

a) Recording of stores : In the recording of store, we record record the receipt and issue of material in store ledger account.

b) Labor Accounting : We make the time list and real wage lists.

c) Cost Account : These cost accounts will record all the expenses except material and labor.

7th Step : To Create Link of Cost Department with other Departments

Cost department should work independently. Cost accountant will be responsible for his works. He will analyze all the cost relating to material, labour and machine. He will check the capacity and efficiency of machine and workers. He will compare his machines and workers with other organisations. He will also create the link with other departments for getting more information relating to cost.

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Accounting Education: What is Costing
What is Costing
Accounting Education
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