Contract Costing
Contract costing is a method of costing that is used to determine the cost of a specific contract. Contract costing is typically used by businesses that undertake long-term contracts, such as construction projects.
The cost of a contract is determined by adding up the cost of all of the direct materials, direct labor, and overhead that are incurred on the contract. Direct materials are the materials that are used to make the product or service. Direct labor is the labor that is used to make the product or service. Overhead is the cost of all of the other resources that are used to make the product or service, such as rent, utilities, and insurance.
Features of Contract Costing
Contract costing has the following features:
- Contracts: Contracts are agreements between a business and a customer to provide a product or service.
- Cost accumulation: The cost of a contract is accumulated by adding up the cost of all of the direct materials, direct labor, and overhead that are incurred on the contract.
- Cost estimation: The cost of a contract is estimated before the contract is started.
- Cost control: The cost of a contract is controlled during the course of the contract.
- Cost reporting: The cost of a contract is reported to management in a cost report.
Conclusion
Contract costing is a method of costing that is used to determine the cost of a specific contract. Contract costing is typically used by businesses that undertake long-term contracts, such as construction projects. Contract costing has a number of features, including contracts, cost accumulation, cost estimation, cost control, and cost reporting.
Additional Notes
- Contract costing is similar to job costing, but there are some key differences. In contract costing, the product or service is typically produced over a longer period of time, and the cost of the contract is estimated before the contract is started.
- Contract costing is often used in conjunction with earned value management (EVM). EVM is a project management technique that is used to track the progress of a project and to measure its performance.
- Contract costing can be used to help businesses make decisions about pricing, production, and profitability.