Contract Costing

Abstract

Like job costing and batch costing, contract costing is also used when customers specify their requirements. However, contract costing is a costing technique applied to large, long-term contracts, such as construction and civil engineering projects, where the contract is conducted off the contractor’s premises, in some cases abroad. The client appoints a contractor and a formal contract is drawn up which includes details of what work is to be carried out, the method and timing of payments and any financial penalties that can be invoked if the work is not completed to the required standard and in the agreed time. Contract costing allows the relevant costs for each contract to be identified and collected, and the profit or loss to be calculated on a contract at the end of a financial period. On uncompleted contracts at the end of the financial period, only a proportion of the profit is transferred.