The costing method used to determine the total cost of construction work is known as contract costing.
Following are the main features of contract costing:
1. Separate Account
A separate contract account is maintained for each contract.
2. Cost Unit
Each contract is considered as a cost unit.
3. Contract Site
A major portion of contract work is done at the contract site.
Following are the main features of contract costing:
1. Separate Account
A separate contract account is maintained for each contract.
2. Cost Unit
Each contract is considered as a cost unit.
3. Contract Site
A major portion of contract work is done at the contract site.
4. Direct Expenses
Expenses incurred at the contract site are considered to be direct expenses.
5. Overheads
Establishment expenses like head office, central store department are treated as overhead expenses. These overheads are recovered either based on the material consumption ratio, labor cost ratio, labor hour ratio or the value of material or labor consumption ratio.
6. Limited Contracts
Number of contract works with a contractor may not be very large.