JOB COSTING

JOB COSTING

Job costing is a method of cost accounting whereby cost is compiled for a specific
quantity of product, equipment ,repair or other service that moves through the
production process as a continuously identifiable unit by charging applicable material,
direct labour, direct expenses and usually a calculated portion of the overhead
JOB COSTING

Job costing is that form of specific order costing which applies where the work
is undertaken as an identifiable unit such as :
i. Manufacture of products to customers’ specific requirements
ii. Fabrication of certain materials where raw materials by the customers
iii. Repairs are done within a factory or at customer’s premises.
iv. Manufacturing goods are not for stock purposes but for immediate delivery
once these are completed in all respects.
v. Internal capital expenditure jobs
FEATURES OF JOB COSTING

 1. The production is against customer’s order but not for stock.

 Each job has its own characteristics and needs special treatment.
 There is no uniformity in the flow of production from department to department.
 Each job is treated as a cost unit under this method of costing
 Each job is distinctively identified by a production order throughout the production stage
 The cost of production of every job is ascertained after the completion of the job.
 The work in progress differs from period to period according to the number of jobs.
 PRODUCTION ORDER

SL NO …………………………….
…………..
Description
………
Quantity ordered
Date…………………
Code No………………
Customer order No……….. Date of commencement …..
Date of finish…………..
Material requisition No………
Operation Nos…………………
Machine No……………………..

Clock Time Operation No.

Dept. No . Operation Quantity

No. Details Made Rejected

 JOB COST SHEET

Job/production order No…… customer………………………

Particulars……………………….. Quantity……………………….
Date commenced ……………… Date completed………………

Material Labour Overhead

Date Material Amount Date Depar Time Amount Date Depar Rate Amount
Department Requisiti tment ticket
on No. tment
No.

Total ` ` `
Summary
Estimated cost Actual cost
Difference

Material
Labour
Overheads
Total
PROBLEM 1:
1. The information given below has been taken from the cost records of a factory in respect of job no.707

Direct material ` 4010

Wage :
Dept A : 60 hours @`3 per hour
Dept B : 40 hours @ ` 2 per hour
Dept C : 20 hours @ 5 per hour

The variable overheads are as follows :

Dept A : `5000 for 5000 hours
Dept B : `3000 for 1500 hours
Dept C : ` 2000 for 500 hours

Fixed expenses estimated at `20,000 for 10,000 working hours. Calculate the cost of the job No. 707 and the price for the job to give a profit
of 25% on the selling price.
Solution 1:

COST SHEET FOR JOB NO. 707

Direct Materials 4010
Wages :
Dept A : 60 x ` 3 = 180
Dept B : 40 x ` 2 = 80
Dept C : 20x ` 5 = 100 360

PRIME COST
4370
OVERHEADS
VARIABLE: Dept A : 60 x ` 1 = 60
Dept B : 40x ` 2 = 80
Dept C : 20 x `4 = 80
220
FIXED : 120 hours @ ` 2 per hour
240

4830
Profit (331/3%) on cost or 25% on selling price
1610
Selling price 6440
WORKING NOTES:

1.Variable Rates : Dept A = `5000/5000hrs

= ` 1 per hour

: Dept B = ` 3000/1500 hrs

= ` 2 per hour

: Dept C = `2000/500hrs
= `4 per hour

: Dept = ` 20,000/10,000hrs
= `2 per hour
PROBLEM 2:

Following information is available for Job 4321, which is being produces at the request
of the customer

Particulars Dept A Dept B Dept C

Material consumed 4000 1000 1500

Direct labour :

Wage rate per hour(`) 3 4 5

Direct Labour hours 300 200 400

In accordance with the company policy the following are chargeable to jobs:
Fixed production overheads = ` 5 per direct labour hour
Fixed administration overheads = 80% of works cost
Profit mark up = 20% margin on selling price

Required :
i. Calculate the total cost & selling price of Job 4321
 JOB COSTING

Particulars Dept. A Dept. B Dept. C TOTAL

Direct material 4000 1000 1500 6500

Direct labour 900 800 2000 3700

Production overheads 900 hrs 4500

@ `5 per hour

Works cost 14,700

Administrative overheads 11,760

@80% of works cost

COST OF PRODUCTION 26,640

profit (25% on selling price) 6615

SELLING PRICE
33,075
PROBLEM 3:

Find out the selling price of Job No. 1234

Particulars Amount
Materials 12.08

Direct wages :22hrs@0.25 per hour 5.50

(Dept A-10 hrs,B-4 hrs,C- 8 hrs)

17.58

Plus 33 1/3% on prime cost 5.86

23.44

Particulars Amount Particulars Amount

An Analysis of the previous year’s

Material
P & L a/c shows the following:
Factory overheads:
77,500

A = 2500
B = 4000
C = 1000
7500

Direct wages: Selling costs 30,000

A = 5000
B = 6000
C = 4000
 SOLUTION : 3

PARTICULARS DEPARTMENT

A B C
i. Factory overheads 2500 4000 1000

ii.Direct labour hours 20,000 24,000 16,000

iii. Factory overhead rate per hour 0.125 0.167 0.063

COST SHEET

PARTICULARS AMOUNT
Percentage of selling cost on workscost
Materials 12.08
=30,000/1,00,000 *100 Direct wages :
= 30%
Dept. A = 2.50 5.50
Dept. B = 1.00
Dept. C = 2.00
PRIME COST 17.58

Factory overheads :

Dept A = (10 hrs @ ` 1.25) = 125

Dept B =(4 hrs @ ` 1.67) = 0.67 2.42
Dept C = (8 hrs @ ` 0.63) = 0.50

WORKS COST 20.00

Selling cost (30% on works cost) 6.00

Cost of sales 26.00

Profit (10% on cost) 2.60

Selling price 28.60

PROBLEM 4 :

A work order for 500 units of a commodity has to pass through 4 different machines of which the machine
hour rates are :
Machine No. I = ` 1.25
Machine No. II = `3.00
Machine No. III = `4.00
Machine No. Iv = `2.50

Following expenses have been incurred on the work order materials ` 20,000 and wages `1500
Machine No. I has been engaged for 200 hrs
Machine No. II has been engaged for 300 hrs
Machine No. III has been engaged for 240 hrs
Machine No. Iv has been engaged for 100 hrs

After the work order has been executed materials worth ` 1000 are found to be surplus & returned to stores
Office overheads = 40% of works cost with all around rise in the cost of administration, distribution and
sales, there has been a 60% rise in office overhead expenditure.

Moreover it is known that 10% of the production will have to be scrapped as not being upto the specification and the sale proceeds of the
scrapped output will be only 50% of the cost of sales.

If the manufacturer wants to make a profit of 20% of selling price of the work order, find out the selling price of a unit of commodity
ready for sale.
 PROBLEM 4 :

Particulars Total Cost

Materials = 20,000

Less: Returned to jobs = - 1000 19,000

1500
Materials consumed
Direct wages

PRIME COST 20,500

Add: Factory overhead at machine hour rate

Machine I = 200hrs @ `1.25 per hour = 250

Machine II = 300hrs @ `3.00 per hour = 900 2360
Machine III = 240hrs @ `4.00 per hour = 960
Machine Iv = 100hr s@`2.50 per hour = 250

WORKS COST 22,860

Add: office overhead (60% of workscost) 13,716

COST OF PRODUCTION 36,576

Less: sale proceeds of scrap

= 10% of production in scrap

= 10% x 36576
= 3658

Sales proceeds of 50% of scrap 1829

Work order 34,747

Add: profit (20% of total cost)
=(34747* 20%) 6949

ACTUAL COST 41,696

No. of units = 500

S.P p.u = 41,696/500
= `83.39
WORK-IN PROGRESS

Following information for the year ending Dec 31, 2010 is obtained from the books &
records of a factory
Particulars Completed job (`) WIP (`)

Raw material supplied from 1,00,000 34,000

stores

Wages 1,00,000 40,000

Materials transferred WIP 2000 2000

Material returned to store 1000

Factory overheads are 80% of wages & administrative Ohs are 25% of factory cost. The value
of executed jobs during 2010 was ` 4,10,000.
Prepare, Job a/c & WIP a/c
WORK-IN PROGRESS

Particulars Amount Particulars Amount

To raw material consumed : By customer’s a/c
4,10,000
Supplies from stores 1,00,000

Less: transferred to WIP 2,000

98,000
Lees: returned to stores 1,000
97000

To wages
1,00,000

To factory overhead (80% of wages)

80,000

2,77,000

To administrative overheads(25% of `
69,250
2,77,000)
To Net profit (transferred to P&L a/c)
63,750

4,10,000 4,10,000
 CONSOLIDATED WORK-IN PROGRESS

Particulars Amount Particulars Amount

To raw materials consumed : By bal c/d 1,35,000

Supplies from stores = 34000

Add: transferred from = 2000
36000
completed jobs

To wages
40,000

To factory overheads (80% wages) 32,000

1,08,000

Administrative overheads(25% *108000) 27,000

1,35,000
1,35,000