What Do You Mean by Contract Costing and Write the Features of Contract Costing

If the number of contracts is higher, each contract is given a distinctive number or name for accounting and administration. A separate contract account is maintained for each contract. In the case of small orders, it is customary to make the payment to the contractor in the form of a lump sum after completion. In addition, it can also be considered a profit center, since it is possible to determine the contractual profit or loss. Because the real purpose of separate billing for each contract is to determine costs and profit or loss. A contractor does not pay the contractor the full amount of work certified by the architect, but deducts a certain percentage of that amount as agreed and pays the net amount to the contractor. This amount deducted and not paid to the contractor is called a ”withholding tax allowance”. Sometimes the specialized work associated with the contract may be assigned by the prime contractor to another contractor. This is called subcontracting. Work that can be outsourced includes steel, electricity, flooring, decoration, etc. Subcontract costs are direct costs for the main contract and are charged to the debit side of the main contract. 3.

The contract is concluded only at the customer`s premises. This method can also be used if P&M is used for a longer period of time, e.B. 3-4 years for a specific contract. If plant and machinery are sold at the time of conclusion of the contract, the realized value of the sale is credited to the contract account. Any gain/loss resulting from the sale of P&M is transferred to the calculation profit and loss account. 5. The specific principles of the calculation of order costs shall apply to the costing of orders. 6. Public contractors involved in railway line contracts. Indirect costs cannot be charged directly to any contractual account. These costs will only be shared among all contractual accounts on the appropriate basis. This is called overhead.

The term overhead costs includes payments to engineers, superiors, architects, managers, traders, headquarters, administrative costs such as staff salaries, telephone costs, postage costs, rent, stationery, advertising costs, etc. (17) In the case of contract calculation, work begins upon receipt of the order by the customer. The term order calculation is used by contractors, builders and engineers who enter into certain contracts such as building construction, shipbuilding, bridge construction, etc. A contract is usually concluded for a fixed period of time and price (called contract prices), which are payable either at the conclusion of the contract or in several instalments depending on the progress of the work carried out. Based on the time that workers have spent on various contract work, wages are distributed among the contracts. The portion of each contract will be debited from the relevant contract account. 5. When a contract has reached an advanced stage, the contractor may be able to estimate future costs with some degree of accuracy. Costs, including contingent liabilities and past actual expenditures, will reveal the estimated total cost of the contract. By deducting this number from the contract price, the estimated net profit of the contract is disclosed. It is possible that some works are not mentioned or memorized at the time of the conclusion of the contract. As a result, the Contractor may modify or receive additional work that must be performed at the end or during the Contracts.

(2) There is no chance of harming the contract. The Cost Plus contract is a contract in which the value of the contract is determined by adding a fixed profit margin to the total cost of the contract. (3) The Contractor shall not be affected by fluctuations in market prices of various cost elements. If the contractor promises to provide equipment for the contract, it is not necessary to debit the amount of the equipment from the contract account. However, the contractor must keep a separate protocol so that the remaining equipment can be returned to the contractor at the end or conclusion of the contract. But according to the calculation of the contract, since it is operated for several years, so that each end of the year of the year an estimated profit is determined, which is known as fictitious profit. Contract costing is less detailed and simpler than calculating order costs. In short, the points are as follows: (iv) The cost of orders involves high investments and expenses compared to the calculation of orders.

In some cases, the contractor may deliver the materials to the contractor. Here, the value of these materials does not have to be debited from the contract account. Unused materials must be returned to the contractor. The main item of indirect costs in most contracts is a charge on headquarters costs. Other indirect costs include the salaries of workers who cannot be identified with a particular contract or the salary of managerial staff who deal with two or more contracts. As part of the contract calculation, a separate number is assigned for each contract and all associated costs are cumulated for each contract. This means that for each individual contract that the company has concluded, separate accounts are kept and kept. All work performed by the contractor to date is divided into two parts: regardless of the amount of certified work, the contractor receives a certain percentage of it, and the balance is owned or retained by the contractor. The outstanding balance of the certified work or the amount withheld or withheld by the contracting party is called ”withholding tax”. Contractual costing may require a significant allocation of overhead costs. Clients` contracts usually specify exactly what overhead costs can be allocated to their projects, and this calculation can vary depending on the contract. .