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Manpreet Kaur, Lovely Professional University Unit 11: Contract Costing

Unit 11: Contract Costing Notes

CONTENTS

Objectives
Introduction
11.1 Definition
11.2 Contract Ledger
11.3 Summary
11.4 Keywords

11.5 Review Questions
11.6 Further Readings

Objectives

After studying this unit, you will be able to:

z z Define the contract costing;
z z Understand the procedure of costing;
z z Explain the contract ledger.

Introduction

In principle, contract costing is similar to job costing as it follows the principles of job costing.
Contract costing is, therefore, a type of job costing and the entire contract, instead of job,
constitutes cost unit. This method of costing which is also known as Terminal Costing is applied
in industries engaged in the construction of buildings roads, dams, bridges, banks, parts, etc. In
this method, a separate number is allotted for every contract and all related costs are accumulated
for each contract. The person who undertakes the work to complete is known as ‘contractor’ and
the person who gets the work done through contractor is known as ‘contractee’.

11.1 Definition

Contract costing is the method or technique of ascertaining cost of a contract. The ICMA, London
defines contract costing 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 or period.” In
other words, “contract costing is the technique of ascertaining cost of a contract.”
From the above definitions, it is clear that contract costing is a type of specific order costing under
which there is a attribution of costs to individual contracts. The important objectives of contract
costing are as follows:
z z To determine the total cost of the contract,

z z To determine the profit or loss for each or every contract, and
z z To facilitate control of cost of each contract.

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