Page 220 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes The main features of contract costing are as follows:
(i) A contract generally takes more than one year to complete,

(ii) Work is generally carried out at a site other than the contractor’s own premises,
(iii) Each contract undertaken is treated as a cost unit,
(iv) Contract is done for a specific consideration which is known as contract price,
(v) Separate contract account is prepared for each contract in the books of contractor to
ascertain profit or loss on each contract,
(vi) Most of the raw materials are specially purchased for each contract,
(vii) The contractor is paid in installments which is done after the work completed has been
certified,
(viii) Most expenses, such as, insurance, telephone, electricity, etc. are also direct,
(ix) plant, machinery and equipment may be purchased for the contract or may be hired for the
duration of the contract,

(x) In case of large contracts, the contractor may employ sub-contractors for a part of the
contract work,
(xi) Penalties may be incurred by the contractor for failing to complete the work within the
contract period,
(xii) Contract costing is concerned with the costing of construction work on repair work and not
with the costing of any goods,

(xiii) There is no heavy investments on assets initially in the case of contract costing,
(xiv) Nearly all labour is direct, and
(xv) Each contract or work involved in contract costing is executed or done as per the
specifications given by the contractee.

Main points of distinction between contract costing and job costing are as follows:
(i) Contract is big in size whereas a job is small in size.
(ii) Contract work is done at site whereas jobs are usually carried out in factory premises.
(iii) A contract takes more time to complete whereas a job usually takes less time to complete.

(iv) In contract costing, most of the costs are chargeable direct to contract accounts, whereas
under job costing, direct allocation to such an extent is not possible.
(v) In contract costing, no heavy investment on assets whereas job costing involves heavy
investment on assets initially.
(vi) Under contract costing, the price is paid in various installments depending upon the
progress of work. In job costing, the selling price of a job is paid after completing the job in
full.
(vii) Contract costing pertains to construction while the job costing is confined to production.
(viii) In contract costing, the cost computation is simple while in the job costing it is complex
because of the overheads.

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