Costing Job, Batch, Contract & Process costing Sujoykrpaul
JOB COSTINg Order costing/ production Order Costing/ Specific Order Costing Determine the cost of specific jobs or lots of production, work order or project separately, Manufacturing firm like presses, machine-tool and non-manufacturing concern general engg. Workshop & Auto Repair shop, Followed by accounting cycle for jobs, Flow of production is different in every department
Objectives Determine profit or loss of each job, the actual costs are compared with the estimated costs, so to ascertain correct estimation & separate the profitable jobs from the unprofitable ones. Helps in minimising the losses & maximising profits, Cost per unit can be ascertained
features Jobs are ascertained against the order of customers, Production is not meant for stock or future sale, Not a continuous process, Different degrees of attention & skills are required for different jobs, Nature of the job decides the process of each job so, no uniformity in the flow of production, Separate cost sheet for each job
advantages Distinguish profitable from the unprofitable jobs, Assist in preparing the estimation, Detailed analysis of cost elements & functions, Helps in future production planning, Cost data helps in preparing budgets, Spoilage & defective work can be discovered, Facilitates in cost plus contracts, Helps management in fixing SP of special orders, Useful for statistical purpose in determining the trends of jobs
Disadvantages Demand excellent production material & labor, Expensive & laborious as it involves more clerical work, Historical costing in nature, so it doesn’t give the prompt remedial measures, Costing of minute jobs may leads to inaccurate results, Non-comparable, More chance of mistakes, Not much use for control purpose.
Batch Costing “the form of specific order costing which applies where similar articles are manufactured in batches either for sale or for use within the company”-ICMA This system to be utilized when a firm manufacture products in readily identifiable batches or definite lots. “A batch is a cost unit which consist of a group of similar articles, which maintain its identity throughout one or more stages of production”
Features Variant of job costing Job costing is tailored to meet the customers’ specifications whereas batch costing produced inventory for future sale to customers. Furniture making, Small tool making, clothing & toys and food processing undertakings.
Contract Costing Variant of job costing, Applies to construction works, Individual cost unit (individual jobs)& cost centre (department or process),
PROCESS COSTING ICMA London “that form of operation costing, where standardized goods are produced” Charles T. Horngren “process costing deals with the mass production of like-units that usually pass in continuous fashion through a series of production of production steps called operation & steps” Process costing is a method of costing which is used to ascertain the cost of output at each stage of production
features Sequential process, Each process is deemed as a cost centre Cost are accumulated separately, Chances of process of loss of input Process are divided with the units of output to get the average, Completed & semi-finished output are to be expressed in common terms, Two or more products are given equal importance.
Advantages Cost can be computed weekly or daily, Cost control & control over production are more effective because of uniform output, Simple cost ascertainment, Less expensive Indirect expenses can be allocated more accurately, Reliable data can be obtained, Quotations become more easy due to standardized processes.
Disadvantages Cost obtained at the end of process Historical costs & their utility for cost control & managerial decision-making is not significant, Inefficiencies in processes can be concealed, Apportionment of joint costs to common products may lead to irrational pricing decisions