Differentiate between contract costing and service costing
Answers
Answer:
Service Costing vs Contract Costing
Service costing is a system used for completion of specific customer orders where each unit produced is considered a job.
Contract costing is a costing system where work is undertaken according to special requirements of customers in a location specified by the customer.
Area of Work
Service costing generally calculate the cost for a single or a few products.
Contract costing is used to calculate the cost for significant scale projects.
Time Period
A Service usually spans over a small period of time, thus Service costing can be completed within a short period of time.
The work of a contract progresses for a long period time, thus contract costing is conducted within an extended time period.
Place of Work
The product is completed within the premises of the company in a Service.
Production or construction takes place in construction site selected by the customer.
Transfer of Profit
When a Service is done and finished goods are sold to the customer, the entire profit will be transferred to profit and loss account.
In contract costing, costs and revenues are recorded in proportion to the degree of completion and the resulting profit is transferred to profit and loss account.