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Bachelor’s Degree Programme (BDP)
ASSIGNMENT (2019-20)
Elective Course in Commerce
ECO – 10: Elements of Costing
For July 2019 and January 2020 admission cycle
School of Management Studies
Indira Gandhi National Open University
Maidan Garhi, New Delhi -110068
Elective Course in Commerce
ECO – 10: Elements of Costing
Dear Students,
As explained in the Programme Guide, you have to do one Tutor Marked Assignment in this Course.
Assignment is given 30% weightage in the final assessment. To be eligible to appear in the Term-end examination, it is compulsory for you to submit the assignment as per the schedule. Before attempting the assignments, you should carefully read the instructions given in the Programme Guide.
This assignment is valid for two admission cycles (July 2019 and January 2020). The validity is given below:
1)         Those who are enrolled in July 2019, it is valid up to June 2020.
2)         Those who are enrolled in January 2020, it is valid up to December 2020.
You have to submit the assignment of all the courses to The Coordinator of your Study Centre. For appearing in June Term-End Examination, you must submit assignment to the Coordinator of your study centre latest by 15th March. Similarly for appearing in December Term-End Examination, you must submit assignments to the Coordinator of your study centre latest by 15th September.

Course Code: ECO - 10
Course Title : Elements of Costing
Assignment Code : ECO - 10/TMA/2019-20
Coverage : All Blocks
Maximum Marks: 100
Attempt all the questions
1. What are the different methods of costing? State the industries to which they can be applied. (20)
Ans: Methods of Costing: The methods of costing are as follows:
1)      Job Costing: Job costing is designed to accumulate cost data for a manufacturing firm which produces goods to specific order. It is also known as specific orders costing or production order costing. Under this method of costing, each job, batch or contract is treated as a cost unit and costs are collected and built up accordingly. It is employed in industries in which:
a) A production is done on the basis of customer’s own specifications.
b) Products are manufactured in distinguishable lots.
c) Products are not uniform.
d) It is practical to maintain a separate record of each lot from the time production is begun until it is completed.
Following is the list of concerns which generally employ job costing method.
a) Printing Work. b) Design Engineering Concerns. c) Repair Works. d) Construction companies. e) Furniture makers. f) Hardware industry. g) Automobile garages. h) Interior decoration etc.
2)      Contract Costing: This method if applied in undertakings erecting buildings or carrying out constructional works, e.g., House buildings, ship building, Civil Engineering contracts. Here the cost unit is one and completed in itself. The cost unit is a contract which may continue for over more than a year. It is also known as the Terminal Costing, since the works are to be completed within a specified period as per terms of contract or agreement executed by the contractor and contractee.
3)      Batch Costing: In this method, a batch of similar or identical products is treated as a job. Here the unit of cost is a batch of group of products, costs are collected and analyzed according to batch numbers and the costs are ascertained batch wise. This method is applied in pharmaceutical industries where medicines or injections are manufactures batch wise or in general engineering factories producing components in convenient batches.
4)      Process Costing: Process costing method is applicable to those industries manufacturing a number of units of output requiring processing. Here an article has to undergo two or more processes for reaching the stage of finished goods and succeeding process till completion. There are number of industries where Process costing system can be used except where job, Batch or Unit Operation Costing is necessary. The following are examples of industries where process costing is applied:
a)      Where the final product merges only after two or more process such as paper-the raw material, bamboo is made into pulp; pulp is a made into paper and then it is finished, glazed etc. for sale;
b)      The product of one process becomes the raw material of another process or operation e.g. refined groundnut oil is the material for making vegetable ghee and
c)       Different products may have a common prior process e.g. brass goods will require melting of brass commonly for all goods. Another example is petroleum products by the same refinery.
d)      Some other industries where Process Costing is applied are:
e)      Chemical works, Textiles, weaving, spinning , Soap making, Food product, Box making, Canning factory, Coke works, Paint, ink and varnishing etc.
5)      Unit costing: This method is also known as single or output costing. The objective of this method is to ascertain the total cost as well as the cost per unit. A cost sheet is prepared taking into account the cost of material, labour and overheads, Unit costing is applicable in the case of mines, oil drilling units, cement works, brick works and units manufacturing cycles, radios, washing machines etc.
6)      Operating costing: This method is followed by industries which render services. To ascertain the cost of such services, composite units like passenger kilometers and tone kilometers are used for ascertaining costs. For example, in the case of a bus company, operating costing indicates the cost of carrying a passenger per kilometer.
7)      Operation costing: This is a more detailed application of process costing. It involves costing by every operation. This method is used where there is mass production of repetitive nature involving a number of operations. The main purpose of this method is to ascertain the cost of each operation.
8)      Multiple Costing: It is also known as composite costing. It refers to a combination of two or more of the above methods of costing. It is adopted in industries where several parts are produced separately and assembled to a single product. 
2. (a)The following data are available in respect of material ZM – 3 :
Supply Period
2 to 4 months
Consumption Rate

300 units per month
50 units per month
150 units per month
1800 units
Storage costs are 25% of stock value. Ordering costs are Rs. 200 per order. Price per unit of material Rs. 32 Compute:
1)         Reorder level
2)         Minimum Stock level
3)         Maximum Stock level

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