Question

Explain the five characteristics of Contract costing? ​

Answer 1

Answer:

Parties Involved.

Site Work.

Direct Expenses.

Indirect Expenses.

Separate Accounts.

Cost Centre and Cost Unit.

Recognition of Profit.

Answer 2

• Parties Involved

The parties to a contract are – (a) Contractor – One who undertakes and executes work under a contract, and (b) Contractee – One for whom the work is undertaken.

• Site Work

Major part of the work in each contract is generally carried out at the site of the contract.

• Direct Expenses

Most of the expenses incurred by the Contractor are directly relatable to the site.

• Indirect Expenses

Indirect Expenses, e.g. Administrative Office Expenses and common expenses are apportioned to various contracts on appropriate basis. For example, depreciation of common equipment used on various contracts is apportioned on the basis of the number of days the equipment has been used on various contracts.

• Separate Accounts

A separate account is maintained for each contract, to ascertain Profit or Loss.

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