Contract Costing Homework Help, Assignment Help, Online Tutor, Tutoring

Submit Assignment

* *

Payment Online Assignment Help

Cost Accounting

Homework Help

sfsf

Contract Costing

Contract costing is a special form of job costing. The only difference between a job and a contract is that of size. Where big jobs are involved, requiring considerable length of time to complete and comprising activities to be done outside the premises of the factory, the system of contract costing is employed. The system is very much common with firms of constructional engineers, ship-builders etc. who undertake definite contracts. The price agreed to be paid by the contractee is termed as the contract price. The system of contract costing is very simple. A separate account is opened for each contract in General Ledger, or in the Contract Ledger, which may be maintained in case the number of contracts happen to be quite large. The contract accounts is debited with all direct and indirect expenditure incurred in relation to the contract. It is credited with the amount of contract price on completion of the contract. The balance represents profit or loss made on the contract and is transferred to the Profit and Loss Account. In case the contract is not complete at the end of the accounting period, a reasonable amount of profit out of the total profit made so far on the incomplete contract, may be transferred to the Profit and Loss Account.

Specific aspects of contract costing

Materials

In case of materials purchased specially for a contract and directly received at the contract site, the necessity of maintaining a proper system of stores accounting will not arise. But proper store accounting will be necessary for those materials which are less frequently required and have been stored in the contractor’s central store and issued to contracts, whenever required. When materials are specially purchased for a contract, the contract accounts will be debited and supplier’s or cash account will be credited with the value of materials purchased. In case the materials have been issued from stores, the relevant contract account will be debited and stores control account in the General Ledger will be credited with materials issued.

Labour

All labour employed at the contract site is regarded as direct irrespective of the nature of job performed by the workers concerned. Salary of the supervisory staff will also be considered as a direct charge against a contract if they have rendered their whole time attention to it. Wages of workers which cannot be identified with a particular contract, or salary of the supervisory staff looking after two or more contracts will be considered as an indirect expense and apportioned over the contracts concerned on a reasonable basis. In case the contract has been divided into several sections and it is required to ascertain the labour cost of each section.