Job costing 3 a


Published on

Published in: Business, Technology
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Job costing 3 a

  1. 1. JOB COSTINGObjectives:Concept of Job costingProcedure of job costingMerits and DemeritsProblems
  2. 2. Introduction: It is that category of basic costing method which is applicable where the work consists of separate, contract jobs or batches each of which is authorized by specific order or contract. Job costing is followed by manufacturing and non manufacturing concerns. It is employed in industries in which:a) Production is done on the basis of customer’s own specification.b) Products are manufactured in distinguishable lotsc) Products are not uniform andd) It is practical to maintain a separate record of each lot from the time production is begun until it is completed. - ICMA London.
  3. 3. Applicability of Job costinga. Job printingb. Manufacturers of special types of equipmentsc. Design engineering concernsd. Repair workse. Engineering concernsf. Construction companiesg. Ship building companiesh. Furniture makersi. Hardware industriesj. Automobile garagesk. Interior decoration
  4. 4. Features:1. Work is performed according to customers orders and specification2. Products are not produced for maintaining stocks3. Every job can be identified clearly4. Every job is charged with its own cost5. Work in progress depends upon the number of jobs in hand at the end of the period6. Separate accounting unit and separate no allotted.7. Separate production card maintained for each job8. All the cost ascertained separately9. Purpose is to segregate the cost of each job or lot10. A job may extend over several accounting period11. Job work is done in the factory premises.
  5. 5. Advantages: Identify the spoilage and hence fix up the responsibility for inefficiency. Management can determine the trends in cost and compare the operating efficiency of men and machines. Preparation of estimates Comparison of actual with estimated cost. Makes available the complete file to the mgt. Ascertainment of profit/loss for each job Helps management to identify unprofitable jobs Helps in providing precise quotation It helps in production planning Helps in fixing of selling price.
  6. 6. Limitations: Involves lot of clerical work Mgt. cannot evaluate precisely the operating efficiency of men and machines. Cost ascertained and compiled are historical cost It does not apply budgetary control to important cost elements such as labour, materials etc. Job costs over any period of time cannot be compared if any major economic changes take place in between. It is expensive to operate and errors are possible due to increase clerical work
  7. 7. Process of accumulation of cost in Jobcosting Direct Material Material requisition Direct Labour Job Time sheets Direct expenses Factory overheads Recovery of predetermined rates Admn. & Finished S&D Cost of Profit Invoice WIP overhead goods Sales Price s
  8. 8. Problem 1 The following information for the year ended 31st March 2008 is obtained from the records of a factory. Particulars Completed Jobs Rs. WIP (Rs.)Raw materials supplied from 88,000 32,000storesWages 1,00,000 40,000Chargeable expenses 10,000 4,000Materials returned to stores 1,000 ------
  9. 9. Problem 1 (cont.) Factory overheads are 80 % of wages. Office overheads are 25 % of factory cost and selling and distribution overheads are 10 % of cost of production. The complete jobs realized Rs 4,10,000. Write up:i. Work in progress Ledger control accountii. Completed job ledger control account andiii. Cost of sales account.
  10. 10. Problem 2 Star co. manufactures many products. Each product passes through two production departments, which have the following cost structures: Particulars Dept ‘A’ Dept. ‘B’ Normal monthly volume 5,000 direct 10,000(based on overhead rate) labour hours pounds of materials Monthly fixed costs at Rs. 10,000 Rs. 40,000 normal volumeMonthly variable costs at Rs. 15,000 Rs. 20,000 normal volume
  11. 11. Problem 2 (cont.) Two job orders that went through the factory last month had the following results: Particulars Job I (Product Job II ‘X’) (Product ‘Y’) Qty. Cost Qty. Cost Direct Inputs: Direct Materials 480 2,400 1,500 4,800 lbs lbs Direct Labour: Department ‘A’ 180 hrs. 1,620 100 900 hrs. Department ‘B’ 60 hrs. 420 40 280 hrs.
  12. 12. Problem 2 (cont.)a. Calculate the unit cost of each of these jobs on a full costing method.b. Recalculate unit costs on a variable costing basisc. Why are the relative variable costs of these two products so different from their relative full cost?
  13. 13. Problem 3 In a current quarter, a company has undertaken two jobs. The data relating to these jobs are as under:Particulars Job 1011 Job 1012 Selling Price Rs. Rs. 1,07,325 1,57,920Profit as a percentage on cost 8% 12 % Direct Materials Rs. 37,500 Rs. 54,000 Direct Wages Rs. 30,000 Rs. 42,000
  14. 14. Problem 3 (cont.) It is a policy of the company to charge factory overheads as 25 % on direct wages and Selling and administration overheads as 40 % on factory cost. The company has received a new order for manufacturing of a similar job. The estimate of direct materials and direct wages relating to the new order are Rs 64,000 and Rs. 50,000 respectively. A profit of 20 % on sales is required. You are required:i. The rates of factory overheads and selling and administration overheads to be charged.