Multiple Costing: Definition & Calculation

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  • 0:03 Multiple Costing
  • 1:10 Costing Methods
  • 3:11 Multiple Costing Example
  • 4:00 Lesson Summary
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Lesson Transcript
Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

This lesson shows how multiple costing is used to tally costs for a product with components created from different operations. Learn to calculate total costs when multiple costing is necessary, and learn what industries use certain costing methods.

Multiple Costing

Finding ways to attach costs to the production of a good is an important part of increasing the profits of any business. If you're selling lemonade, you need to know how much it costs to make it, don't you? Identifying costs gives you the opportunity to reduce them and boost profits. This lesson looks at costing. Costing is the accounting method used to attach costs to the production of a good. Using the build a lawn tractor as an example, the lesson will illustrate a method called multiple costing.

Multiple costing, also known as composite costing, is a type of accounting method used when goods are sold that contain several other processed parts, and these parts are costed differently. Just as the final product needs a cost associated with it, so do each of the parts created by other processes. This is called costing. Each component or part can be, and usually is, costed using a different practice. Examples of goods that need multiple costing are televisions, vehicles, computers, airplanes, and smartphones.

Costing Methods

There are several types of costing methods. Different industries find certain ones more conducive to their environment. Common examples of costing methods are job costing, process costing, contract costing, and batch costing.

Job costing is a method of costing where each job needed to create a product is given a cost tied to materials, labor, and overhead. This is a well-known type of costing for graphic design, marketing, and information technology. An example of job costing is the total money spent on materials, labor, and overhead needed to create the frame, engine, and mower deck for a lawn tractor.

Then there is process costing, when the hood is made for a lawn tractor, hoods for other models of tractors are also made; they're only differentiated by the decals attached to them. Because the costs cannot easily be identified for a specific hood, this is called process costing. It occurs when products have so few differences that they cannot be given individual costs. Process costing is used when a product goes through several changes during creation. The manufacturing of screws and nails are other common examples.

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