CONTRACT COSTING ASSIGNMENT - CONTRACT COSTING Contract Costing is a special type of job costing where the unit of cost is a single contract Contract

CONTRACT COSTING ASSIGNMENT - CONTRACT COSTING Contract...

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CONTRACT COSTING Contract Costing is a special type of job costing where the unit of cost is a single contract. Contract itself is a cost center and is executed under the customer's specifications. Contract Costing is defined by the I C M a Terminology as "that form of specific order costing which applies where work is undertaken to customer's special requirements and each order is of long duration. The work is usually of constructional nature." Contract Costing is also termed as ''Terminal Costing." The principles of job costing are applicable to contract costing and is used by such concerns of builders, public works contractors, constructional and mechanical engineering firms and ship builders etc. who undertake work on a contract basis. SPECIAL FEATURES OF CONTRACT COSTING The following are the special features of Contract Costing: (1) The cost unit is a specific contract. (2) Each contract takes a long time to complete. (3) The work being of a constructional nature, the same is executed at customer's site, as per his specifications. (4) Bulk of the materials purchased and delivered direct to the contract site or obtained from the central stores through the requisition slips. (5) Generally specific portions of the contract are given to sub- contractors.
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(6) Most of costs which are normally treated as indirect can be identified specifically with a particular contract and are charged to it as direct costs. (7) Overheads constitute only a very small proportion of the cost of the contract. However, indirect costs consist mainly of administrative cost of the central office. (8) Scale of operations and cost control becomes difficult due to theft of materials, labour time utilization, pilferages etc. (9) The pay roll is prepared either at the site or at a central administrative office. COSTING PROCEDURES In contract costing, costs are allocated, collected and accumulated according to the contract works. Each contract is treated as a separate entity in which each contract account may be maintained separately or in general ledger itself for the purpose of costing and cost control. The following are the costing procedure for different costs relating to the important expenses: (1) Materials: (A) Contract Account is debited with the following transactions relating to materials: (I) Bulk of materials are purchased for a specific contract from suppliers. (2) Materials obtained from contractor's central stores through the requisition slips. (3) Materials transferred from one contract to another contract.
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(4) Value of materials remaining unutilized on site during the accounting year. (B) Contract Account is credited with the following transactions relating to materials: (1) Materials returned under Materials Return Note. (2) Sale of materials at site on account of some extraneous reasons.
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