Contract costing serves as a framework in project oriented businesses like construction and engineering projects which helps to evaluate and manage costs associated with a particular project.
Contract costing is termed as a specialized form of job costing, that typically involves undertaking any project on a contract basis.
Contract Costing, the term which is also being regarded as ‘Terminal Costing’ and a specialized form of job posting. As the name implies, it involves a specific contract in project oriented businesses like construction or engineering projects.
Here, a contract is made which specifies and tracks all the cost and details regarding a specific project.
Contract costing is a method which is applied to calculate, allocate, record and analyze every cost associated with individual projects or contracts.
It is referred to by some as Terminal Costing, because after the completion of work and all cost paying is done, the account is immediately closed.
Not only that, contract costing also takes in the detailed information and manages finances and accounting of indirect and direct revenues and costs of the project.
Apart from that it also involves fast billing or extending contracts to manage large scale projects which ensures long term efficiency and effectiveness.
In simple words, A contract costing is a form of special contract where the work is done according to the customer’s requirement and preferences and the cost is managed accordingly to the duration of the project.
The term is mostly used by contractors, engineers, or builders, who undertake definite contracts like construction of a building, house, bridge construction, and more like that.
The contract usually involves a fixed period and price (called contract price), which need to be paid either on the completion of the contract or on installments according to the progress of work done and the contract.
Let’s know the objectives of Contract Costing!
