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Contract Costing is a special type of job costing, where the unit of cost is a single contract. The contract itself is a cost center and is executed under the customer’s specifications. Contract costing is a variant of job costing system applicable, particularly in case of the organization’s doing construction work. It is also known as terminal costing. Each contract, short term, or long term, is treated as a job.

Features of Contract Costing

A cost unit is a specific contract. Each contract takes a long time to complete.

The work being of a constructional nature, the same is executed at the customer’s site, as per his specifications.

Materials

The bulk of the materials purchased and delivered direct to the contract site or obtained from the central stores through the requisition slips.

Wages

The wages which cannot be charged directly to any contract are treated as indirect wages that require apportionment.

Direct Charges

Most of the costs which are normally treated as indirect can be identified specifically with a particular contract and are charged to it as direct costs.

Bill of sub - contractors

Third parties often do parts of large contracts under sub-contracts. Sub-contracts is a practice normally followed on the region of economy, specialized nature of work, want of capacity, etc.

Certificate of Completion

The contracts do not pay the full value of the work certified as completed but retain a certain percent under the terms of the agreement.

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