Contract costing, sometimes called terminal costing, is the amount that a contracted job will cost to perform.

This type of contract is used by businesses who do some type of construction as part of the services they offer, as those types of jobs are almost always done on a per contract basis. This can include any type of construction including ship building, airplane building, road construction, and dam construction. The term typically applies to longer term contracts. When a company takes on a contract there are many factors to consider. First, the job will be based on a contract with another company or possibly a government institution. For accounting purposes, the costs required will be calculated per contract as opposed to an overall accounting done yearly. This allows the contracting company to give the contractee, the company or government purchasing the contract, an estimate of their cost. It also gives the company doing the contract an easier way to calculate profits and costs. When a contract cost is calculated, there are several key aspects of the job that will be factored in. The most straightforward cost is the cost of labor. Another key factor is the cost of material. This is a little harder to calculate, as sometimes materials can be used from another contract, or there may be excess from the current contract
Meaning of Contract Costing Contract costing is that method of costing in cost accounting which is used to collect and identify all the expenses relating to a specific contract. For this purpose, Contractor has to maintain contract ledger in which he has to show contract account.

Contract here means an agreement to complete construction of building or any other engineering work which need many days, months or years to complete. Contract Account Contact account is that account who shows all the expenses in its debit side. Credit side of this account, we show value contract price or work certified value. Difference between debit and credit side of will show notional profit or loss. Following are main Contract Expenses and Costs which shows in Contract Account under Contract Costing :1. Material Cost Material or raw material which is used for construction is the main expense or contract cost and it will be debited in contract account. It is supplied from store or purchased from market directly. If material is transferred from any other contract, then its cost will be adjusted on the basis of material transfer note. 2. Labor Cost On the basis of wages analysis sheet, labor cost is calculated for a specific contract order. If same labourer is used more than one contract, then time devoted to each contract is calculated and on this basis, labor cost is allocated. 3. Direct Expenses

We also add direct expenses, if any. 4. Overheads Overheads can be allocated on the basis of some % on cost of material, wages or prime cost or MHR or LHR. 5. Sub- Contract Cost It will also include in contract cost, if to complete sub-construction for main construction. 6. Cost of Extra Work. Importance of Contract Costing Contract costing is important because with this method, we can calculate cost of big jobs. If we do n't know contract costing and calculating of profit under this method, we will usejob costing method and result will not be awesome because many items like value of work certified, notional profit, contract price are not used in job costing. So, it is better for us to learn all things which is in contract costing

Uses of cost accounting

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The main uses of cost accounting as follows: 1. Helps in Ascertainment of Cost: Cost Accounting helps in the ascertainment of cost of each product, process, job, contract, activity

etc. by using different methods of costing such as Job Costing and Process Costing. 2. Helps in Control of Cost: It helps in the control of material costs, labour costs and overheads by using different techniques of control such as Standard Costing and Budgetary Control. 3. Helps in Decision making: It helps the management in making various decisions such as (a) Whether to make or buy a component (b) Whether to retain or replace an existing machine (c) Whether to process further or not (d) Whether to shut down or continue operations (e) Whether to accept orders below cost or not (f) Whether to expand or not (g) How much reduction in the selling price should be made in case of depression? 4. Helps in fixing Selling Prices: It helps the management in fixing selling prices of products or services by providing detailed cost information. 5. Helps in Inventory Control: It helps in inventory by using various techniques such as ABC analysis, Economic Order Quantity, Stock levels, Perpetual Inventory system and Continuous Stock Taking, Inventory Turnover Ratio etc. 6. Helps in Cost reduction: It helps in the introduction of cost reduction programme and finding out new and improved method to reduce costs.

7. Helps in measurements of Efficiency: It helps in measurements of efficiency of operations through establishment of standards and variance analysis. 8. Helps in preparation of Budgets: It helps in the preparation of various budgets such as Sales Budget, Production Budget, Purchase Budget, Man-Power Budget, Overheads budget. 9. Helps in identifying Unprofitable Activities: It helps in identifying unprofitable activities so that the necessary correction action may be taken. 10. Helps in identifying Material Losses: It helps in identifying material losses such as wastage, scrap, spoilage and defective through report on material losses so that the necessary corrective action may be taken. 11. Helps in identifying Idle Time and Labour Turnover: It helps in identifying idle time and labour turnover through the report on idle time and labour turnover so that the necessary corrective action may be taken. 12. Helps in identifying Idle Capacity: It helps in identifying idle capacity so that the necessary corrective action may be taken. 13. Helps in improving Productivity: It helps in improving productivity of materials and labour. 14. Helps in Cost Comparison: It helps in Cost Comparisons such as (a) Comparison with Standard Figures: Comparison of actual figures with standard of budgeted figures for the same period and the same firm; (b) Intra-firm Comparison: Comparison of actual figures of one period with those of another period for the same firm;

(c) Inter-firm Comparison: Comparison of actual figures of one firm with those of another standard firm belonging to the same industry; and (d) Pattern Comparison: Comparison of actual figures of one firm with those of industry to which the firm belongs. 15. Helps in checking the accuracy of financial accounts: It helps in checking the accuracy of financial accounts with the help of reconciliation statement prepared to reconcile the profit as per cost accounts with the profit as per financial accounts.