There are several types of costing systems used in business and accounting, including:
Types of costing system
- Job costing: This system is used to calculate the cost of a specific job or project. Costs are tracked and allocated to each job, and the total cost of the job is determined by adding up all the costs associated with it.
- Process costing: This system is used to determine the cost of producing a large number of identical products, such as in a manufacturing plant. Costs are tracked by process or department, and the total cost is allocated to the units produced.
- Activity-based costing (ABC): This system is used to determine the cost of each activity or process that contributes to the production of a product or service. Costs are assigned based on the amount of resources (such as time or materials) used in each activity.
- Standard costing: This system involves establishing predetermined costs for materials, labor, and overhead, and comparing actual costs against these standards to determine variances.
- Variable costing: This system only considers the variable costs (such as direct materials and direct labor) associated with producing a product or service. Fixed costs (such as rent and salaries) are treated as period expenses and not included in product costs.
- Marginal costing: This system is used to determine the cost and profitability of producing an additional unit of a product. It takes into account only the variable costs associated with producing the additional unit.
