## Techniques of Costing
Techniques are how costs are treated and analysed (distinct from methods, which are about what is costed).
### 1. Uniform Costing
- Multiple firms in the same industry adopt a common costing system and uniform terminology.
- Enables inter-firm comparison and determination of industry-wide production costs.
- Useful when seeking government tax-relief or protection.
### 2. Marginal Costing
- Costs split into fixed and variable components.
- Only variable costs are charged to products; fixed costs are period costs.
- Helps understand the impact of volume changes on profitability.
- Key metric: Contribution = Sales − Variable Cost.
### 3. Standard Costing and Variance Analysis
- Pre-determined standard costs are set before production.
- Actual costs recorded and compared with standards.
- Differences = Variances (Favourable or Adverse).
- Supports cost control and performance evaluation.
### 4. Historical Costing
- Costs ascertained after they have been incurred.
- Limited utility for future decision-making.
- Two approaches:
- Post Costing: Costs determined after production is complete.
- Continuous Costing: Costs ascertained as soon as a job is completed or while in progress.
### 5. Absorption Costing
- Both variable and fixed costs allocated to products.
- Used for external financial reporting and traditional inventory valuation.
- Contrast with Marginal Costing (fixed costs excluded from product cost).
### Quick Comparison: Marginal vs Absorption Costing
| Aspect | Marginal Costing | Absorption Costing |
|---|---|---|
| Fixed cost treatment | Period cost (not in product cost) | Product cost (absorbed into units) |
| Inventory valuation | Variable cost only | Full cost (variable + fixed) |
| Profit difference | Differs when inventory levels change | Differs when inventory levels change |
| Use | Internal decisions | External reporting |