Friday, 30 January 2015

What is Costing and how it is done

Costing means evaluating or assessing the cost of a product or job in terms of money value.

Anything that you produce or create has its value in terms of money. Some of your resources have been utilised in producing that product and you need to evaluate those resources utilised in order to know the cost of your product.

For example, you are investing some money, time, energy, labour and other elements to produce that product. So value of all these items constitute the cost of your product. You will add up the monetary value of each of these inputs to arrive at the cost of your product.

So, costing can be defined as an accurate and systematic process of computing the cost of production of any product or the cost of running a business.

How Costing is done?
Costing is done by adding the value of all the factors of production to the cost. For example, take the simple case of your going to a movie. Here, your movie cost does not comprise only the movie ticket cost. To watch the movie, you have to go there by some transportation or your own vehicle. So, you incur the to and fro fare charges or the petrol charges of your vehicle. Then, if you have to eat there, the cost of food also is incurred. Then the value of your time spent for watching it may also be added if you are a very busy person and your other work is in loss due to your sparing time for the movie. Any other costs can also be added if they affect you financially or by way of health disturbance because of your watching the movie. So all these factors can add up to the cost of your movie and literally it will become a great price paid for watching that movie. This is how costing is to be done

  • First you will have to know and locate all the elements that affect the cost of your object.
  • Then you will have to bifurcate the actual quantum of those elements affecting your particular object.
  • If there are four elements used for making, say, 100 numbers of a particular product, then your cost per one unit will be the one hundredth part of the sum of value of those 4 elements.
  • When there are many stages of production, you can calculate the cost per each stage of production by considering the expenses incurred for each stage separately. This is known as process wise cost.
  • When there are many products with same elements of expenses or factors involving, you will calculate cost by identifying the quantum of proportionate expenses for each product. This is known as product wise cost.

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