## Methods of Costing

The method of costing is selected based on the nature of the industry — what is being produced and how production is organised. There are seven recognised methods.

### The Seven Methods

#	Method	Core Idea	Example Industry
1	Job Costing	Cost tracked per individual job/order	Printing press, interior decoration, advertising
2	Batch Costing	Extension of job costing; cost per batch of similar units	Toy making, pharmaceuticals
3	Contract Costing	Cost tracked per long-duration contract	Bridge/ship construction
4	Single/Output Costing	Cost per unit of one standardised product	Bricks, cement, coal
5	Process Costing	Cost tracked at each stage of production	Paper from pulp, oil refining, sugar
6	Operating Costing	Cost of providing a service	Transport, hospitals, hotels
7	Multiple Costing	Combination of two or more methods	Bicycles, radio assembling

### Selecting the Right Method

Custom/unique output → Job or Contract Costing
Standardised mass output → Single or Process Costing
Sequential transformation stages → Process Costing
Groups of identical items → Batch Costing
Service industry → Operating Costing
Complex product with distinct sub-processes → Multiple Costing

### Industry–Method–Cost Unit Reference Table

Industry	Method	Cost Unit
Transport	Operating	Passenger-km / Tonne-km
Power	Operating	Kilowatt-hour (kWh)
Hotel	Operating	Room-day
Hospital	Operating	Patient-day
Steel	Process / Single	Tonne
Coal	Single	Tonne
Bicycles	Multiple	Number
Bridge Construction	Contract	Project/Unit
Ship Building	Contract	Project/Unit
Interior Decoration	Job	Assignment
Advertising	Job	Assignment
Furniture	Job	Number
Brick Works	Single	1,000 units
Oil Refining	Process	Barrel/Tonne/Litre
Sugar (with own cane field)	Process	Tonne
Toy Making	Batch	Units
Cement	Single	Tonne/Bag
Radio Assembling	Multiple	Units

Worked example

### Example 1

Identify the method of costing:

(i) All costs are directly charged to a specific job.

→ Job Costing

(ii) All costs are directly charged to a group of products.

→ Batch Costing

(iii) Cost is ascertained for a single product only.

→ Single/Output Costing

(iv) The nature of the product is complex and no single method suffices.

→ Multiple Costing

### Example 2

Multiple Costing — Bicycle Manufacturing:

A firm manufactures bicycles including components in-house.

Components (tyres, chains, gears): costed using Job or Batch Costing
Assembling the complete bicycle: costed using Single/Output Costing
Combination of both → Multiple Costing

The cost unit is: Number (of bicycles)

⚠️ Common exam mistakes

Confusing Batch Costing with Job Costing — batch costing applies to groups of identical units; job costing tracks each unique order separately
Confusing Operating Costing (service industry method) with Operation Costing (each manufacturing operation) — these are entirely different despite similar names
Applying Single/Output Costing to multi-stage industries — use Process Costing when there are distinct sequential production stages
Thinking Multiple Costing is a standalone method — it is always a combination of existing methods; identify which ones are being combined
Forgetting that the cost unit must match the method — Operating Costing always uses composite units (passenger-km, room-day), not simple units

Reference:

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