Eight Methods of Costing:

1. Job Costing:
Job costing is used when products or services are unique and produced based on customer orders. Costs are assigned to each job separately. For example, a construction company uses job costing to track the costs of building a specific house for a client.

2. Process Costing:
Process costing is used when products are mass-produced in a continuous flow. Costs are averaged over all units produced during a specific period. For example, a beverage company uses process costing to calculate the cost per unit of soda produced in a month.

3. Activity-Based Costing (ABC):
ABC identifies activities within an organization and assigns costs to those activities based on their usage. This method provides a more accurate allocation of costs compared to traditional methods. For example, a healthcare facility uses ABC to allocate overhead costs to different departments based on their usage of resources.

4. Standard Costing:
Standard costing involves setting predetermined costs for materials, labor, and overhead and comparing them to actual costs. Variances between standard and actual costs are analyzed to improve performance. For example, a manufacturing company sets standard costs for producing a specific product and compares them to actual costs to identify areas for cost reduction.

5. Marginal Costing:
Marginal costing focuses on the impact of producing one additional unit on costs and profits. It separates fixed and variable costs to calculate the contribution margin. For example, a software company uses marginal costing to determine the cost and profitability of developing an additional feature for an existing product.

6. Absorption Costing:
Absorption costing allocates all overhead costs to products produced, including fixed manufacturing overhead. This method is required for external financial reporting. For example, a clothing manufacturer uses absorption costing to include fixed manufacturing overhead costs in the cost of each garment produced.

7. Direct Costing:
Direct costing only includes direct costs (materials, labor, and variable overhead) in the cost of products. Fixed manufacturing overhead is treated as a period cost and not allocated to products. For example, a consulting firm uses direct costing to calculate the cost of providing a specific service to a client.

8. Target Costing:
Target costing involves setting a target selling price based on market conditions and customer expectations and then working backward to determine the allowable cost to achieve the desired profit margin. For example, a car manufacturer uses target costing to design a new model that meets customer expectations while maintaining a competitive price point.