Costing Systems

Introduction to Costing Systems

There are several costing systems employed in practice. These are explained as follow:

A. Historical Costing

Costs are determined only after they are acquired and that is why it is termed as historical costing system in this system. For instance, costs acquired in the month of April, 2007 might be determined and collected in the month of May. Such costing system is very helpful for conducting post-mortem examination of costs that is analysis of the costs acquired in the past. Historical costing system might not be helpful from cost control point of view but it positively point out a trend in the behaviour of costs and is helpful for estimation of costs in future.

B. Absorption Costing

Costs are absorbed in the product units irrespective of their nature in this type of costing system. Other words, all fixed and variable costs are absorbed in the products. It is relies on the principle that costs should be charged or absorbed to anything is being costed, either it is a cost unit, cost center.

C. Marginal Costing

Only variable costs are charged to the products and fixed costs are written off to the Costing Profit and Loss A/c in Marginal Costing. The standard followed in this case is that because fixed costs are mainly period costs, they should not come in into the production units. Obviously, the fixed costs will not enter in the inventories and they will be esteemed at marginal costs only.

D. Uniform Costing

This is not a different technique of costing but is the adoption of the same costing principles and procedures through various units of the same industry or by various undertakings through mutual agreement. Uniform costing make easy valid comparisons among organizations and assists in eliminating inefficiencies.

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