This document discusses job costing and batch costing. It begins by defining job order industries and mass production industries. It then explains that job costing is used in job order industries where production is done according to customer orders. Batch costing is a variation of job costing used when a definite number of identical items are produced in batches to be held in stock. It discusses the objectives of job costing and provides an example of a job cost sheet. Finally, it explains the concept of economic batch quantity and how to calculate it.

1. JOB & BATCH COSTING

2. JOB AND BATCH
COSTING
 All industries may be classified into two
categories :
 (1) job order industries
 (2) mass production industries

3. JOB COSTING
 Job order industries, production work is done
against order from customers. each job work
needs special treatment and can be clearly
distinguished form other jobs. Each job is
completed as per customer’s satisfactions.
Example: industries of printing
press,roads,bridges,construction of building
etc.

4. In mass production Industries
 Firms manufacture uniform types of products
.since production is of standard products .it is
on a mass scale and on a continues basis .
No customer order or specification is
required for production. Examples :
textiles,paper,sugar,chemical,steel etc.

5. JOB COSTING
 Job costing or job order costing is a method of
cost ascertainment used in job order industries.
Special features of such industries are as
follows :
(a) Production is against customer’s and not for
stocks.
 (b) Each job has its own characteristics and
requires special attention.
(c) The flow of production from one department
to another is not uniform. It is the nature of job
which determines the department through which
it is to be processed.

6. OBJECTIVES OF JOB
COSTING
 The following are the main objectives of job costing:
(1) cost of each job /order is ascertained separately.
this helps in finding out the profit and or loss on each
individual job.
(2) It enables the management to know those jobs
which are more profitable and those which are
unprofitable.
(3) It provides a basis for determining the cost of
similar job undertaken in future it thus helps in future
production planning.
(4) it helps the management in controlling costs by
comparing the actual costs with the estimated cost.

7. PRACTICAL PROBLEM
 A factory uses job costing .the following data are obtained
from its books for the year ended 31st Dec.2010.
 DIRECT MATERIAL- 90,000
 DIRECT WAGES- 75000
 PROFIT- 60900
 SELLING AND DISTRIBUTION OVERHEAD-52500
 ADMINISTRATION OVERHEADS-42000
 FACTORY OVERHEADS-45000
 (A) Prepare a job cost sheet indicating the prime cost ,work
cost, production cost ,cost of sales and the sales value.
 (B) in 2011 the factory receive an order for a number of jobs
.it is estimated that direct material required will be Rs.

8. Con.
 1,20,000 and direct labour will cost rs.75000/- .
What should be the price of these jobs if factory
intends to earn the same rate of profit on sales
assuming that the selling and distribution
overheads have gone up by 15%? The factory
recovers factory overheads as a % of direct
wages, administration and selling and
distribution overheads as a % of works cost ,
based on cost rates prevailing in the previous
year.

9. BATCH COSTING
 This is a variation of job costing. while job costing is
concerned with costing of jobs that are made to a
customer’s particular requirements , batch costing
is used when production consists of limited
repetition work and a definite number of articles are
manufactured in each batch to be held in stock for
sale to customers generally. Thus a batch is cost
unit consisting of a group of identical (exactly alike,
same)items.
Batch costing is applied in the manufacture of
shoes, toys , ready garments, component parts of
say, car radios, watches, etc.

10. BATCH COSTING IS USED
IN
 (1) Shoe manufacture
 (2) Toys
 (3) Readymade garments
 (4) Tyres and tubes

11. PARCTICAL PROBLEM
Component 89-x is made entirely in cost centre 75. material
cost is 6 paise per component and each component takes
10 min. to produce. The machine operator is paid 72 paisa
per hour, and the machine hour rate is Rs. 1.50. the setting
up of machine to produce component 89-x takes 2 hours 20
minutes .
On the basis of this information , prepare a
comparative cost sheet showing the production and setting
up cost .both in total and per component assuming a batch
of (a) 10 components (b) 100 components and (c) 1000
components.

12. Economic batch quantity(EBQ)
 It was seen that when batch size increases, the total cost
per component decreases. It is due to the fixed nature of
setting up cost which remains unchanged with the
increase or decrease in the batch size .Thus larger the
number of units in a batch ,lower is the setting up cost per
unit . In industries where the batch costing is employed
,an important point is the determination of the optimum
quantity in a batch at which cost per unit is minimum. This
is known as a Economic batch quantity . While
economic order quantity two type of costs are considered.

13. Con.
 (a) setting up costs: This is the cost of
setting the machine and the tools for
production of a particular batch .this is a
fixed nature . Therefore , when the size of
the batch is large, setting up cost per article
in the batch is lower.
 (b) carrying cost: This includes the cost of
storage , interest on capital invested etc.
larger size of a batch leads a higher carrying
costs.

14. In determining the economic batch quantity, there
are five main consideration
 (1) The cost and time taken in setting up the
tools on the machines.
 (2) the cost and time taken in manufacturing
the parts .
 (3) The interest on capital invested in the
parts.
 (4) The cost of storage.
 (5) The rate of consumption or sale of the
parts.

15. Con..
 EBQ= 2US/C
 EBQ = Economic batch quantity
 U = No. of units to be produced in a year
 s = Set up costs per batch
 C = carrying cost per unit of production

16. Practical problem
 A contractor has to supply 10,000 paper
cones per day to a textile mill. He finds
that when he starts a production run ,he
can produce 25000 paper cones per
day.The cost of holding a paper cone in
stock for one year is 2 paisa and the
setting up cost of a production run is Rs.
18 .how frequently should production
runs be made.

17. References/Sources
 Accounting for Managers by Dr. Sakshi Vasudeva Galgotia
Publishing Company Chapter 25 Job Contract and Operating
costing page no. 867
 Cost Accounting by S.P jain K.L Naran Part 4 Chapter 1 Job Batch
and Contract Costing page no. 1.4

18. Thank U