## Techniques of Costing
Techniques of costing are analytical tools applied on top of costing methods to achieve specific managerial objectives. Unlike methods (which depend on industry type), techniques can be applied across industries.
### Six Key Techniques
| # | Technique | Purpose |
|---|---|---|
| 1 | Uniform Costing | Multiple firms in an industry adopt the same costing system and terminology for inter-firm comparability |
| 2 | Marginal Costing | Separates fixed and variable costs; uses P/V ratio to study volume–profit relationships |
| 3 | Standard Costing | Pre-sets standards for each cost element; compares actual vs. standard; analyses variances and takes corrective action |
| 4 | Historical Costing | Actual costs are ascertained only after they are incurred |
| 5 | Direct Costing | All direct costs charged to products; all indirect costs written off to profits in the period they arise |
| 6 | Absorption Costing | All variable manufacturing costs + fixed production overheads charged to products; admin/selling/distribution overheads written off to profits in the period they arise |
### Marginal Costing vs. Differential Costing
Both are used for decision-making but differ fundamentally:
| Basis | Marginal Costing | Differential Costing |
|---|---|---|
| Cost distinction | Requires clear fixed/variable cost separation | No such separation required |
| Key metric | Contribution / P/V ratio | Differential costs vs. incremental or decremental revenue |
| Scope | Standalone technique | Applicable within both absorption costing and marginal costing |
| Recording | Incorporated in cost accounting records | Worked out separately, outside normal records |
| Sub-types | — | Incremental costing (cost increases) / Decremental costing (cost decreases) |
### Methods vs. Techniques — The Distinction
- Methods depend on the nature of the business/product (job, process, operating, etc.)
- Techniques are analytical overlays used for control and decision-making — they can be combined with any method