A SYNOPSIS ON

“CONTRACT COSTING AT RUDRA CONSTRUCTION”

Submitted By

Miss. Shelke Supriya Bhanudas

Under the Guidance of,

Dr. A. V. ADSURE

Submitted To

SAVITRIBAI PHULE PUNE UNIVERSITY

In the partial fulfillment

Of the requirements for the award of

MASTERS OF COMMERCE (M.COM)

THROUGH

New arts commerce and science college,

Ahmednager.

BATCH 2021-22

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INTRODUCTION :

Today business and industry needs costing systems to their individual requirements. Costing
experts believe that it may not be possible to devise a single costing system to fulfill
everybody’s needs. They have developed different methods of costing for different industries
depending upon the type of manufacture and their nature. Mainly the industries can be
grouped into two basic types :

1) Industries doing job work.

2) Industries engaged in mass production of a single product or identical production.

A concern engaged in the execution of specification order is characterized as a firm

producing several items distinguishable from one another by respective specification and
other details. Such a concern is thought of involved in performing. Job works Production
under job work is strictly according to customer’s specifications and each lot, job or
production order is unique. Example of jobs order type of production are : Ships Building,
Roads, Manufacture of Heavy Electrical Machinery, Machine Tools, Iron Foundries, Wood
Working Shops etc. Here each job or unit of production is treated as a separate identity for
the purpose of costing. The method of costing and for ascertaining cost of each job are known
as a job costing. Contact Costing and Batch Costing.
The continuous or process type of industry’s is characterized by the continuous production of
uniform products according standard specification. In such a case the successive lots are
generally as to size and form and, even if there is some variation is specifications, it is of a
minor character. Example of continuous type of industries are chemical and pharmaceutical
product, paper food products, canning, paints, varnish oil, rubber, textile etc. Here the method
of Costing used for the purpose of ascertaining costs are: Process Costing; Single Costing;
Operating Costing etc.

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COMPANY PROFILE :

Name of the Company : RUDRA CONSTRUCTIONS,

(BUILDERS & DEVELOPERS)

Name of the Promoter : MR. BHUSHAN KAKADE

Services : Building Construction Services

Interior Design Services
Landscaping Services
Civil Services

No of Years : 6TH Year

Address : Rudra Appartment,

Near Kanda Market, (Eknath Nager)
Maratha Nager, Kedgaon.
Ahmednager. – 414005

Website : www.rudraconstruction.com

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REVIEW OF LITERATURE :

Meaning :

Cost Accounting is the process of accounting for cost from the cost from the point at
which expenditure is incurred or to be incurred to the point of charging to the cost center and
cost units. Cost has many uses which include the preparation of statistical activities carried
out or planned. The term ‘Costing’ refers to the techniques and process of determining
different methods of costing are used to suit these diverse requirement costs of a product
manufactured or services rendered.

Definition :

Cost accountancy has been defined by the institute of cost and management
accountants, London, as follow-

“The application of costing and cost accounting principle, methods, and technique, to
the science, art and practice of cost control and the ascertainment of profitability. It includes
the presentation of information derived there from for the purpose of managerial decision
making.”

Procedure of Contract Costing :

In contract costing, most of the expenses are direct in nature as in the form of materials,
labour, expenses, plant, sub-contract charges and the like. Only a small portion of amount is
charged as overheads which are apportioned on suitable basis. Accounting treatment of costs
of contract costing is briefly explained below:

1) Materials :
The value of materials used is debited in the concerned contract account. Materials
may be specifically purchased from the open market, issued from the stores, transfer
from other contracts or supplied by the contracted himself. If materials are returned to
stores, the value of materials is credited in the concerned contract costing.
2) Labour :
Generally, the contract is carried on only at the site of the contractee i.e. customer not
within the company premises. Hence, labour is engaged at site to work on the
contract. The amount paid to workers is wages which is directly debited in the
concerned contract account.

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 3) Direct Expenses :
The direct expenses are debited in the concerned contract account as and when they
are incurred. Examples of direct expenses are hire charges paid for the plant procured
from outside, sub-contractor’s charges, architect’s fees, electricity, insurance and the
like.
4) Plant and Machinery:
The plant and machinery is treated in two ways. Under first method, the full value of
plant and machinery is debited in the concerned contract account if the plant and
machinery is specifically purchased for the contract. At the end of contract, the plant
and machinery may be sold out in the market if it is not required further. If so, the sale
proceeds are credited in the concerned contract account.
5) Overheads:
Indirect costs cannot be directly charged to any contract account. These costs are
apportioned to all the contract accounts only on the suitable basis. These are called as
overheads. The term overheads includes payment made to engineers, supervisors,
architects, managers, store keeper, central office, administrative expenses like staff
salaries, telephone expenses, postage, rent, stationery, advertisement expenses etc.
6) . Sub-Contract Charges:
Sometimes part of the contract work is given on subcontract basis and payments made
on subcontract work is debited to Contract Account.

Some Terminology and their Treatment for Contract Costing:

(A) Surveyor’s Certificate and Retention Money:

In case of large contract which extends for more than a year it is normal
practice to make payment against the portion of the contract completed on the
basis of work certified by the contractee’s surveyor. The certificate issued by
the surveyor (or technical assessor) in this respect is known as Surveyor’s
Certificate. Generally, as per terms of the contract, full amount of the work
certified is not paid to the contractor. A certain percentage (say 10% to 20%)
of the amount is retained by the contractee and is paid sometime after the
completion of the contract. The sum of money thus retained is known as
Retention Money. This is done to give protection to the contractee in case the
contractor does not fulfill the terms and conditions of the contract.

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 (B) Uncertified Work:
The work which has been done by the contractor but not certified by the
architect on the date of accounting due to insufficient progress is known as
Uncertified Work. In case of incomplete contract for which profit is required
to be calculated, the value of uncertified work should be taken into account
and it is justifiable to evaluate such work at cost. Because, it is not logical to
calculate profit on the work which is not complete. Thus the Contract A/c is
credited with this cost of uncertified work and Work-in-progresses debited
with the same. This entry is reversed at the beginning of the next year.

Types of Contract:

 Work-in-Progress Contract:

Work-in-progress means incomplete contract which is in progress. The contractor may

prepare a Work-in-progress A/c by debiting the account with the value of work certified and
cost of uncertified work and by crediting the profit not transferred to Profit & Loss A/c (i.e.
reserve profit). The difference between the two sides of the account less cash received is the
work-in-progress, which is shown in the Balance Sheet.

 Cost-Plus-Contract:

It is the reverse of a fixed price contract. Here the contractor is paid the actual cost
incurred plus a certain percentage of profit over the cost of production. Generally, it is
provided in the agreement as to items of expenditure to be included in the actual cost and the
percentage of profit to be added to the actual cost. This type of contract is suitable in those
cases where probable cost of the contract cannot be estimated with a reasonable degree of
accuracy in advance due to various reasons (such as longer duration, wide fluctuation in price
etc.). Government contracts (such as dams, bridges, power house, aircraft etc.) are usually on
cost plus basis. The books and documents of the contract shall remain open for checking and
verifying by its customers. The cost-plus contracts have some advantages and disadvantages
for both the parties to the contract.

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Research Methodology
The design of research project popularly known as the “Research Design”.
Research design is a basis of framework, which provides guideline for the rest of research
process. It is the map of the blue print according to which the research is to be conducted.
The research design specifies the method of study. There are three basic types of research
design via exploratory, descriptive and environmental. A research design helps to define the
problem, method of data collection and analysis, time and requirement for the project to
estimate the expenses to be incurred. It is purely and simple the framework or plan for a study
that data collection. This project based descriptive and statistical research design.

Methodology :

Methodology is the systematic, theoretical analysis of the methods applied to a field

of study. It comprises the theoretical analysis of the body of methods and principles
associated with a branch of knowledge. Typically, it encompasses concepts such as the
paradigm, theoretical model, phases and quantitative or qualitative technique.

A methodology does not set out to provide solutions – it is, therefore, not the same as
a method. Instead, a methodology offers the theoretical underpinning for understanding
which method, set of methods, or so-called “best practices” can be applied to specific case,
for example, to calculating a specific result.

It has been defined also as follow :

1) “The analysis of the principle of method, rules, and postulates employed by a

discipline”.
2) “The systematic study of method that are, can be, or have been applied within a
discipline.”
3) “The study or description of method.”

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DATA COLLECTION :

The study was conducted in accordance with secondary information obtained form
various resources :- .

 Primary Data Collection :

Primary data was collected through visiting different construction sides and
understand there treatment of expenses towards construction work.

 Secondary Data :
Secondary data has been obtained from published reports like the annual
reports of the company, balance sheet, and profit and loss account, websites, records
such as files, reports maintained by company.

Methods used for Data Collection :

Following methods are used for data collection for the research purpose

I. Questionnaire :
To collect the data for project purpose I used will be used questionnaire methods. In
this method, I formed some close ended and open questions which I will ask time of
data collection.
II. Documents :
In this method research will go through various documents of the entity and also will
refers some books and government article about accounts of employee.
III. Observation :
Research observed some important and essential things in the company.

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Objectives of the Project :

Everything in life holds some kind of objectives to be fulfilled. The study is not and
exception to it. The following are few straight forward goals which I have tried to fulfill in
my project.

1. To know the meaning and scope of Contract Costing.

2. To understand the internal working and be able to interpret the precise.
3. To understand the allocation and apportionment of different expenses.
4. To ascertain the total cost of contract so as to known the profit or loss incurred from
the contract.
5. To find relationship between the Contractor and the Contractee in case of income and
expenditure.

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Chapter scheme of Project

1. Introduction
2. Review of Literature
3. Research Methodology
4. Data analysis and Interpretation
5. Findings, Conclusion and Suggestions
Bibliography

Bibliography

i. Contract Costing – Jawahar Lal

ii. Costing for Union Negotiation – Donald Spots
iii. Concept for Contract Costing – Committee on Management Accounting Practice.

Webiographv

i. www.icai.com
ii. www.accountingtooals.com

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