Introduction to Costing Methods Questions and Answers

Introduction to Costing Methods Questions and Answers

SECTION – A

Question 1.
What is costing method?
Answer:
Costing methods is a system for assigning manufacturing costs to an individual product or batches of products. It is also accounting techniques that are used to help understand the value of inputs and outputs in a production process.

Question 2.
Give the meaning of costing?
Answer:
The ICMA, London, has defined the term costing as “the technique and process of ascertaining costs”.

Question 3.
Mention different categories of costing method.
Answer:
Job costing, Batch costing, Process costing, Contract costing etc.

Question 4.
What is job costing?
Answer:
An order-specific costing technique, used in situations where each job is different and is performed to the customer’s specifications is called job costing. It involves keeping an account of direct and indirect costs.

Question 5.
What is batch costing?
Answer:
Batch costing is a form of specific order costing. When orders are received from different customers, there are common products among orders; then production orders may be issued for batches, consisting of a predetermined quantity of each type of product. Batch costing method is adopted in such cases to calculate the cost of each such batch.

Question 6.
What do you mean by process costing?
Answer:
Process costing is that form of operation costing which is used to ascertain the cost of the product at each process or stage of manufacture where processers are carried on from one process to another where output of one process becomes the input for the next process till the finished product is obtained Example Chemical works textile industries etc.

Question 7.
What is contract costing?
Answer:
Contract costing is that form of specific order costing which applies where the work is undertaken according to customers’ requirements and each order is of long duration as compared to job costing.

Question 8.
Define EOQ.
Answer:
It is the reordering quantity which results in more trade discount as a result reduces the transportation costs and reduction in ordering costs.

Question 9.
Name any four industries in which Batch Costing is used.
Answer:
Four industries in which batch costing is used are:

• Shoe manufacturing
• Readymade garmets
• Toys manufacturing
• Drug Industuries

SECTION – B

Question 1.
Explain the importance of costing method.
Answer:
Costing methods are accounting techniques that are used to help under¬stand the value of inputs and outputs in a production process. By tracking and categorizing this information according to a rigorous accounting system, corporate management can determine with a high degree of accuracy the cost per unit of production and other key presentation indicators. Organisation needs this information in order to make informed decisions about production levels, pricing, competitive strategy, future investment, and a host of other concerns.

Cost records should act as a guide for future transactions and statistics data of manufacturing cost and of expense fluctuations must be maintained for the correct guidance and control of every department of the factory and to serve as a guide for future estimates, quotations and for fixing prices.

The method of presentations of cost result is also very important. In order to secure based information, there must be periodical tabulation of results, i.e., comparisons of actual cost of jobs with their corresponding estimates and comparisons of the cost of similar jon with one another.

Question 2.
Explain the different categories of costing method.
Answer:
The different categories of costing method are:
Job costing, Batch costing, Process costing, Contract costing etc.
(i) Job costing: An order-specific costing technique, used in situations where each job is different and is performed to the customer’s specifications is called job costing. It involves keeping an account of direct and indirect costs.

(ii) Batch costing: Batch costing is a form of specific order costing. When orders are received from different customers, there are common products among orders; then production orders may be issued for batches, consisting of a predetermined quantity of each type of product. Batch costing method is adopted in such cases to calculate the cost of each such batch.

(iii) Process costing: Process costing is that form of operation costing which is used to ascertain the cost of the product at each process or stage of manufacture where processers are carried on from one process to another where output of one process becomes the input for the next process till the finished product is.obtained Example Chemical works textile industries etc.

(iv) Contract costing: Contract costing is that form of specific order costing which applies where the work is undertaken according to customers’ requirements and each order is of long duration as compared to job costing.