What is contract costing and its types?

Contract Costing is a special type of job costing, where the unit of cost is a single contract. The contract itself is a cost center and is executed under the customer’s specifications. It is also known as terminal costing. Each contract, short term, or long term, is treated as a job.

Who uses contract costing?

Examples of companies that likely utilize contract costing include construction companies, architects, and the government.

What are the features of contract costing?

The following are the major features of Contract Costing:

• Parties Involved.
• Site Work.
• Direct Expenses.
• Indirect Expenses.
• Separate Accounts.
• Cost Centre and Cost Unit.
• Recognition of Profit.

What is the basic method of contract costing?

Contract costing is the method of costing which is applied in a business where separate contracts of non-repetitive nature are undertaken. According to Sharie, “Contract or terminal cost accounts are applicable to a concern which makes specific contracts and requires to know the cost of each.

What is the importance of contract costing?

Every clause in a contract, regardless of whether it applies to economic or non-economic issues, can have cost implications. However, The importance of contract costing depends on the share of a company’s total costs expended on labor. Some direct costs such as wages and benefits are easy to measure.

What are the objectives of contract costing?

The objectives of contract costing is to ascertain the cost incurred and to show the profit earned or loss suffered on each contract undertaken after its completion as also from time to time during the period of its execution.

What is the difference between Job costing and contract costing?

Job costing is the ascertaining of costs that are incurred in the undertaking of a specific job. On the other hand, contract costing is the ascertaining of costs associated with the production of a specific product as per the contract agreement with the customer.

What is contract costing explain its features and advantages of contract costing?

Advantages. The contractor controls the costs involved in the contract for labor, material, other fixed expenses, etc. A contract account is prepared for each customer, identifying the cost incurred to date & work completion. Control is also maintained over the defectives arising out of quality deficiency.

How do you calculate profit in contract costing?

Notional Profit: This is the actual profit earned by the contractor on completion of a project. It is calculated by deducting the cost of work certified from the value of work certified.

What is retention money in contract costing?

Retention money is described as the sum of money held by the employer as a safeguard for any defective or non-conforming work by the contractor. Retention money safeguards the employer by defects which can occur during the defects liability period if the contractor doesn’t response according to the contract terms.

What is the difference between job costing and contract costing?

What is means by extra work done in contract costing?

Sometimes the contractor is required to do some extra work like additions or alterations in the work originally done as per agreement. The contractor will charge extra money for such extra work. The cost of such extra work is debited to the contract account and extra price realised is credited to the contract account.