Here are the steps to solve this problem: 1. Calculate the factory cost of each existing job: Job 1011: Direct materials (Rs. 37,500) + Direct wages (Rs. 30,000) = Rs. 67,500 Factory overheads @ 25% of wages = Rs. 30,000 * 25% = Rs. 7,500 Factory cost = Rs. 67,500 + Rs. 7,500 = Rs. 75,000 Job 1012: Direct materials (Rs. 54,000) + Direct wages (Rs. 42,000) = Rs. 96,000 Factory overheads @ 25% of wages = Rs. 42,000 * 25% = Rs. 10

1. JOB COSTING
Objectives:
Concept of Job costing
Procedure of job costing
Merits and Demerits
Problems

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 lots
c) Products are not uniform and
d) It is practical to maintain a separate record of each lot
from the time production is begun until it is completed.
- ICMA London.

3. Applicability of Job costing
a. Job printing
b. Manufacturers of special types of equipments
c. Design engineering concerns
d. Repair works
e. Engineering concerns
f. Construction companies
g. Ship building companies
h. Furniture makers
i. Hardware industries
j. Automobile garages
k. Interior decoration

4. Features:
1. Work is performed according to customers orders and
specification
2. Products are not produced for maintaining stocks
3. Every job can be identified clearly
4. Every job is charged with its own cost
5. Work in progress depends upon the number of jobs in
hand at the end of the period
6. Separate accounting unit and separate no allotted.
7. Separate production card maintained for each job
8. All the cost ascertained separately
9. Purpose is to segregate the cost of each job or lot
10. A job may extend over several accounting period
11. Job work is done in the factory premises.

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. 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. Process of accumulation of cost in Job
costing
 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. 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 32,000
stores
Wages 1,00,000 40,000
Chargeable expenses 10,000 4,000
Materials returned to stores 1,000 ------

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 account
ii. Completed job ledger control account and
iii. Cost of sales account.

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 volume
Monthly variable costs at Rs. 15,000 Rs. 20,000
normal volume

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. 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
basis
c. Why are the relative variable costs of these
two products so different from their relative full
cost?

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 1,57,920
Profit as a percentage on cost 8% 12 %
Direct Materials Rs. 37,500 Rs. 54,000
Direct Wages Rs. 30,000 Rs. 42,000

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.