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L5 ManAc Manual Advance Edition

L5 ManAc Manual Advance Edition

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Published by: Ebooks Prints on Aug 23, 2011
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An initial distinction must be made between costing techniques and costing methods.

(a) Costing Techniques and Principles

Costing techniques and principles – such as marginal costing, absorption costing,
incremental costing, differential costing, budgetary control and standard costing – are
of general application to different industries and services. These techniques are used
for purposes of decision making and control over costs and performance and they are
applicable to all types of manufacturing and service industries.

(b) Costing Methods

Costing methods refers to the system (or systems) adopted to arrive at the cost of
products or services within a particular organisation.

The type of costing system to be adopted should be tailored to meet the needs of the
individual business and its manufacturing processes – effectively what the business
does and how it does it.

Two main types of product costing system are used:

Job costing is used where products or batches of products are made to
individual customer specifications. Examples include general engineering,
printing, foundries, contracting, and building. Individual cost analyses are
prepared for each separate order.

Process costing applies where large quantities are made in a continuous flow or
by repetitive operations. The total costs incurred are averaged over all

114 Product Costing


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