Cost and Management Accounting · Introduction to Cost and Management Accounting

Methods and Techniques of Costing for CA Intermediate

Updated 4 October 2026 · Fact-checked

Methods of costing decide how you collect and total cost for a type of work, such as job, batch, process or service costing. Techniques of costing decide how you analyse or use cost, such as marginal, standard or budgetary costing. Pick the method from the nature of production, then add techniques.

Understand Methods and Techniques of Costing

Every business needs to know what its products or services cost. But a printing press making one-off orders and an oil refinery running non-stop cannot collect cost the same way. So costing has methods, each suited to a type of activity.

A method of costing is the way you accumulate and ascertain cost for a cost unit. It depends on the nature of the work. Job costing suits work done to a customer's order. Batch costing suits a group of identical units made together. Process costing suits continuous, standardised production where output of one process feeds the next. Service costing suits organisations that provide services, such as transport, hospital or hotel. Other methods you should know by name are unit (single or output) costing, contract costing, operation costing and multiple (composite) costing.

A technique of costing is a way of analysing or using cost data. It is not tied to the type of production. Marginal costing charges only variable costs to products and treats fixed costs as period costs. Standard costing compares actual cost with predetermined standards and studies variances. Budgetary control compares actual results with budgets. Other techniques include absorption costing, uniform costing and activity based costing.

The key point: a method answers "how do I collect cost for this kind of work?" A technique answers "how do I analyse, control or use that cost?" A firm uses one method (or more) and can apply several techniques on top. For example, a chemical plant uses process costing as its method and standard costing and budgetary control as techniques.

In the exam, you are usually asked to name the right method for a business, to state features of a method, or to separate methods from techniques. Read the nature of output first. It almost always points to the answer.

Key rules to remember

Job cost (basic structure): Job cost = Direct material + Direct labour + Direct expenses + Overheads absorbed; Cost is collected separately for each job on a job cost sheet.
Process cost per unit: Cost per unit = (Total process cost − Scrap value of normal loss) ÷ Normal output units; Normal output = input − normal loss. Abnormal items are treated separately.
Marginal cost and contribution: Contribution = Sales − Variable (marginal) cost; Fixed cost is charged against total contribution for the period, not to units.
Standard costing variance: Cost variance = Standard cost for actual output − Actual cost; This form applies to costs only. A positive result is Favourable (F) and a negative result is Adverse (A). Sales and profit variances use the reverse form: Actual − Standard.
Budgetary control comparison: For costs/expenses: Budget variance = Budgeted − Actual. For sales and profit: Budget variance = Actual − Budgeted.; In both forms a positive result is Favourable (F) and a negative result is Adverse (A). Always label the result F or A, and use the right form for the type of item.

How to solve Methods and Techniques of Costing questions

Use this approach for any question that asks you to choose, describe or distinguish methods and techniques of costing.

1Read the case and note the nature of output: made to order, in batches, continuous, or a service.
2Decide the method. Customer order points to job. Group of identical units points to batch. Continuous flow with several stages points to process. Services point to service costing.
3Check for special features, such as a long-term project (contract costing) or a single uniform product (unit costing).
4Identify any technique mentioned or needed: marginal for variable-fixed split and decisions, standard for variance control, budgetary for planning and control.
5State clearly whether each item is a method or a technique. Do not mix them.
6Give reasons using facts from the case, such as cost unit, cost collection point and type of control needed.
7Close with a one-line conclusion naming the method and the techniques.

Quickest way: Output-type test for MCQs and short answers

When to use it: Use this when time is short, especially for the 30 marks of MCQs, which have no negative marking, so always attempt every one.

Underline the business type in the question.
Apply the test: order-based means job, group means batch, continuous means process, service means service costing.
If the option says "marginal, standard or budgetary", it is a technique, so eliminate it when a method is asked, and the reverse.
Eliminate options that mismatch the cost unit, such as a per-kilometre unit for a job.
In written answers, use a short format: definition, feature, suitability, example. Each point earns step marks.

Common mistakes in Methods and Techniques of Costing

Calling marginal costing or standard costing a method of costing.
Both are taught in the same chapter as job and process costing, so they blur together.
Fix: Remember: methods depend on the type of production; techniques are ways of analysing or using cost and can be applied with any method.
Using job costing for continuous production.
Students focus on the word "cost of each unit" rather than how production flows.
Fix: Ask if output is made to a customer's order. If production is continuous and standardised, use process costing.
Confusing job costing with batch costing.
A batch can look like a big job.
Fix: In job costing the work is specific to a customer. In batch costing, a lot of identical units is made together and the batch is the cost unit.
Thinking marginal costing includes fixed cost in product cost.
Students mix it up with absorption costing.
Fix: In marginal costing only variable costs go into product cost and inventory valuation. Fixed cost is written off in the period.
Saying standard costing and budgetary control are the same.
Both use predetermined figures and variance comparison.
Fix: Budgets are for the whole business or a function and set total targets. Standards are per unit and relate to the cost of a product or operation.
Naming the wrong cost unit for service costing.
Students apply units like "per piece" to services.
Fix: Use a service-specific unit, such as passenger-kilometre, patient-day or room-day.

Worked examples

Example 1

Name the most suitable method of costing for each business and give one reason: (a) a firm that builds furniture to customers' specifications; (b) a sugar mill running continuously through several stages; (c) a hospital.

Show the solution

(a) Work is done to each customer's specific order, so each order is separate. Method: job costing. Cost is collected on a job cost sheet.
(b) Production is continuous, standardised, and output of one stage becomes input of the next. Method: process costing. Cost is collected process-wise.
(c) The hospital provides a service, not a physical product. Method: service costing. A cost unit such as patient-day or bed-day is used.

Answer: (a) Job costing; (b) Process costing; (c) Service costing.

Example 2

Distinguish between a method of costing and a technique of costing. Classify each of these: batch costing, marginal costing, process costing, standard costing, budgetary control, service costing.

Show the solution

Method: it is the way cost is accumulated and ascertained for a type of activity. It depends on the nature of production or service.
Technique: it is the way cost data is analysed or used for control and decisions. It can be applied along with any method.
Batch costing is a method, because it suits production in groups of identical units.
Marginal costing is a technique, because it separates variable and fixed cost for analysis and decisions.
Process costing is a method, because it suits continuous production.
Standard costing is a technique, because it compares actual cost with predetermined standards.
Budgetary control is a technique, because it compares actual results with budgets.
Service costing is a method, because it suits service organisations.

Answer: Methods: batch, process and service costing. Techniques: marginal costing, standard costing and budgetary control.

Exam tips

Expect MCQs asking you to match a business with a method. Learn the output-type test and you can answer in seconds.
In written answers, a method-versus-technique question is easy marks. Define both, give the basis of difference, and classify examples correctly.
For job versus process costing, write 4 to 5 points: nature of production, cost unit, cost collection, cost per unit calculation, and treatment of work in progress.
Mention that techniques can be used with any method. Examiners look for this link.
Attempt every MCQ. There is no negative marking.

Practice questions from Introduction to Cost and Management Accounting

Methods and Techniques of Costing in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Methods and Techniques of Costing: frequently asked questions

What is the difference between methods and techniques of costing?

Methods are ways to collect and total cost for a type of work, like job or process costing. Techniques are ways to analyse or use cost, like marginal or standard costing. Techniques can be combined with any method.

What is the main difference between job costing and process costing?

Job costing applies when work is done to a customer's order and each job is separate. Process costing applies to continuous, standardised production where cost is collected process-wise and averaged over units produced.

Is batch costing a method or a technique?

Batch costing is a method. It is used where identical units are made together in a group, and the batch is the cost unit. It is closely linked with job costing.

Can a business use more than one method or technique together?

Yes. A factory can use process costing as its method and also apply standard costing and budgetary control as techniques. Some businesses also use more than one method for different activities.