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Cost Accounting Contract costing

N.JASMINE

[201112]

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N.E.S RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE BHANDUP (W)

Topic name:
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CONTRACT COSTING Subject name: COST ACCOUNTING class: SYBBI under the guidance of : PROF. MRS. RIYA RUPANI

ACKNOWLEDGEMENT
I would express my sincere thanks to Prof.Mrs.Riya Rupani for giving me this opportunity or platform to interact with widespread. I would like to thank my friends who have supported me throughout in completing this project. I am equally grateful to those who gave me moral support & guided me in different matters regarding the topic. My professor had been very kind & patient while suggesting me the outline of the project & clearing my doubts. I thank everyone for their support.

CERTIFICATE
This is to certify that Miss NADAR JASMINE EBAN roll no: 23 of SYBBI OF N.E.S RATNAM COLLEGE has completed the project successfully on CONTRACT COSTING in COST ACCOUNTING subject. Under the guidance of Prof. MRS RIYA RUPANI for IVth semester in the academic year 2011-2012

Date: ordinator

Signature

of

Co-

Place:

Signature of professor

Index
Sr.No
01 02 03 04 05

Contents
Introduction Features Terms Conclusion Reference

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07-08 09 10 11 12

INTRODUCTION
costing is also known as terminal costing as it discharges the contract when the work is done. It is a form of job costing and for this reason both contract and job costing methods are based on the same costing principles. The difference between these two is that in job costing the cost unit is relatively small, whereas in contract costing cost unit is big. It has been well said that a job is a small contract and a contract is a big job. As the cost unit in contract is relatively high, it takes a considerable time to complete. Contract costing is employed in business undertakings engaged in building construction, road construction, bridge construction and other civil engineering works.

Contract

firm engaged in the construction works requires to know the total cost of the construction work done. The total costs of the work help to find out the profit earned from these works. The cost information about construction works helps to monitor and evaluate the performance of contract work and to determine the total contract cost. Such information is provided by a costing method known as contract costing.

Contract costing is the costing method applied

to determine the cost of construction work performed as per a customer's specification. The construction work is undertaken at the site allotted by the client. The contract sites vary and are always outside the premises belonging to the clients. A separate code number is allotted to each site where a number of contract works are undertaken. A contract account is maintained for each contract work to record the contract costs under contract costing. Maintaining a contract account helps to find out the amount of profit earned during a particular period since financial books do not report it separately. Normally, a contract account is prepared at every year-end to determine the profit for the specified period.
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FEATURES
1.As the contracts are of large size, a contractor usually carries out a small number of contracts in the course of year. 2.Contracts are carried out away from the contractors premises.
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3.Contracts may continue over more than one accounting period. 4.A separate account is prepared for each contract to ascertain profit or loss in each contract. 5.Specialist sub contractors may be employed for say, electrical fittings, welding work, glass work etc. 6.Plant and equipment may be purchased or hired for the duration of the contract
7.

Payments by the customer (contractee) are made at various stages of the contract.

BASIC TERMS IN CONTRACT COSTING

1.

Escalator clause: It is also termed as escalation clause. In this case contractor is required to
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increase the contract price if there is increase in the elements of cost beyond a percentage over the prices prevailing at the time of tendering quotation.
2.

Contract: A contract is a task or an assignment undertaken to complete a construction work within a specified time. Contractor: It is the construction company or an individual who undertakes the construction work. Contractee: It is the party or the person who has assigned the contract to the contractor. Contract price: It is the consideration for which the contract is undertaken. On completion of the project the contractee pays the full amount to the contractor of the contract price. Work certified: It is that portion of the completed work which is certified by the architect or the surveyor, Work uncertified: It is that portion of the work completed by the contractor, but not yet certified by an architect or the surveyor.

3.

4.

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6.

7.

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8.

Retention money: Some percentage of the work certified is retained by the contractee till the completion of the work. Notional profit: It is an estimated profit in respect of work certified. And balancing amount on the debit side.

9.

CONCLUSION
With this I conclude that contract costing is fully based on constructions, to keep a record for the expenditure and the income, contract costing is prepared. It is very help full for the contractors and very easy to maintain. Normally contract costing are done for a particular period of time till the completion of the project and the contract costing is terminated hence it is also said as terminal costing.

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REFERENCE

Webliography:
Carocks.files.wordpress.com Jkshahclasses.com

Bibliography:
Cost accounting (S.Y BBI)

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