Garment Costing | Methods of Costing

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Costing:
Textile Costing includes all the activities like purchase of raw materials and accessories, knitting fabrics, processing and finishing of fabrics, sewing and packing of garments, transport and conveyance, shipping, over heads, banking charges and commissions, etc. To do perfect garment costing, one must know about all these activities thoroughly about their costs, procedures, advantages and risk factors. Also he must know how to solve the problems when occurred and to take suitable alternate decision immediately in time.

The classification of costs can be according to their nature or purpose. According to their nature, they can be classified as materials cost, labor costs, overhead costs etc. and further more. According to purpose it can be classified as period costs, product costs, indirect and direct costs, normal and abnormal costs etc. and further more.


Methods of Costing:
The method of costing to be adopted depends on the nature of manufacturing activity. There are various methods of costing. They are:

  1. Standard costing
  2. Marginal Costing
  3. Job costing
  4. Batch costing
  5. Contract or Terminal costing
  6. Single or output costing
  7. Process costing
  8. Operation costing
  9. Multiple costing
  10. Historical costing


1. Standard Costing: Under this technique, standard costs are established even before the actual expenditures are incurred. Then the actual costs incurred are compared with the standard costs and the differences between the two are calculated.

2. Marginal Costing: The purpose of this type of costing is to study the relationship between cost, volume and profit. It is also called as variable costing or differential costing.

3. Job Costing: Job Costing is done, as the name suggests, on job works which may differ from case to case basis. By giving different job numbers and debiting the costs on the jobs, cost of each job work can be ascertained.


4. Batch Costing: Where small parts are manufactured in lots, it would be convenient to ascertain the cost of each batch of articles so manufactured. Such type of costing is known as batch costing.

5. Contract or Terminal Costing: This is a method of costing applicable to contractors’ job.

6. Single or Output costing: Where there is only one product, output costing is adopted. A cost sheet or a production account is drawn, to show the cost of production of the product.

7. Process costing: If a product passes through different stages of manufacture or processes, the method of costing suitable is process costing. The special feature of this method is the product at the end of a process becomes the raw material for the next process till it reaches the last process.

8. Operation costing: Under this method, the cost of each operation is calculated. This is suitable for industries in which producing a product requires stages of operation.
ix) Departmental costing: With the help of this method of costing, the cost for each department or section is ascertained.

9. Multiple costing: Multiple Costing is useful when a product is manufactured in an assembly line like an automobile. It is important to choose the most appropriate method of costing for your business or industry. Most businesses do not like to engage cost accountants and leave it to financial accountants to take care of this job. It is not recommended. There are many free lance cost accountants available and they can be engaged on need basis.


10. Historical costing: Just like financial accounting, the costs are ascertained after they are incurred and only the actual costs are taken into account wherever possible.

 

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