Job Costing

Companies that manufacture customized

products or provide customized services
to clients use a costing system called job
costing, which accumulates, tracks, and
assigns costs for each job.

EXAMPLES

Builder of
Accounting
custom Hospital
firm
homes
 Process Costing
Companies that produce a homogeneous
product on a continuous basis use process
costing to accumulate, track, and assign
costs to products.

EXAMPLES

Paint Beverage
Oil Refineries
Manufacturers Manufacturers
 Operations Costing
Operations costing is a hybrid of job
and process costing, for companies
that make large numbers of products
that are standardized within a batch.

EXAMPLES

Clothing Automobile Footwear

Manufacturers Manufacturers Manufacturers
 Measuring and Tracking
Direct Materials-Job Costing

As raw materials are used in a

particular job, they are recorded in the
job-cost report.

Indirect materials are not listed

separately, but allocated as overhead.
Measuring and Tracking Direct Labor

Wage Number
Direct Labor = X
Rate of Hours

Wage Rates must include the cost of Fringe

Benefits, such as cost for health, and other
insurance, retirement benefits etc.
 Manufacturing Overhead
• The most difficult
cost to track and
assign to products
• Indirect in nature
• Made up of many
unrelated costs
 Manufacturing Overhead
Choosing an allocation
base requires a thorough # of Units
understanding of: Produced

What causes overhead

costs to be incurred? # of
Direct
Labor
Hours
Other # of
base???? Machine
Hours
Application of Overhead to Products

On an average a company As a labour intensive

incurred Rs.12,00,000 per company, and uses labor
year as overhead costs. hours as the cost driver
and estimates using
average 9,600 labor hours
in a year.
Estimated
Overhead =
12,00,000 = 125 per
Estimated 9,600 labor hour
Allocation Base
Using the Predetermined Rate
Using this predetermined overhead
rate, for every labor hour worked on a
product, the company should apply
Rs.125 in overhead cost.

Therefore if a job requires 22 labor hours, it

was allocated Rs.2,750 as manufacturing
overhead (or 22 x Rs.125).
 Overhead EthicsApplication
and
• Decision Making
Because overhead
Inis today’s
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to environment, companies have to be
products
aware usingof the economic impact of their decisions,
not only
predeterminedbut also of their ethical impact.
overhead rates, it
is likely that actual
Information
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 Basic Ethics
ProcessandCosting
Decision•Making
Tracked by the material
In today’s business environment, companies
department ashave to be
products
aware not only of the economicpassimpact of their decisions,
through
but also of their ethical impact.
• Tracked by HR
Information department as
products pass through
being used
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Process Costing Flow
 Equivalent Units
•Equivalent units are:
• The number of finished units that can
be made from the material, labor,
and overhead included in partially
completed units
• For example:
•2,000 units that are 50% complete
are equivalent to 1,000 finished units
(or 2,000 x 50%)
Equivalent Units – FIFO Method
In the FIFO method:
The equivalent units and unit costs for the
current period relate only to the work done
and the costs incurred in the current period.
 Equivalent Units - Weighted Average
Method
In the Weighted Average method:
The units and costs from the current period are
combined with the units and costs from last
period in the calculation of equivalent units and
unit costs.
 Service Department
Ethics and
Cost Allocation
Decision Making
In today’s business environment, companies have to be
Large organization have both production
aware not only of the economic impact of their decisions,
and service
but also departments. Production
of their ethical impact.
departments are involved in the direct
manufacture of a product/service to
Information
beingexternal
used customers. Service departments
provide services to internal departments
for?
within the company. c eed Allocating service
ex ment To
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 Problem 6
• ABC labour intensive furniture company manufacture TV
cabinet. The estimated manufacturing overhead is Rs.125/-
per labour hour. Later, the company found that the actual
overhead per labour hour is Rs.164/-. This has necessitated
the company to allocate the underestimated cost. The
company has employed 5 five person who work as per labour
hours. Prepare the cost schedule summary for the company
and allocate the underestimate cost.

Particulars Amount Labour Cost Hours Amount

Oak plywood sheets 43,750 Carpenter 1 8.3 6350
Maple Wood Texture 30,000 Carpenter 2 9.2 6850
Particle Board 3,900 Workman 1 7.5 2850
Glass 16,500 Workman 2 7.5 2850
Workman 3 7.5 2850
Particulars- Yearly Average Amount
Average Labour Hours 11,400
Work-in-Progress 12,52,522
Fininished Goods 18,75,552
Cost of Goods Sold 55,25,525
 Problem 7
• An electronics parts manufacturing company produces an
electronic part which passes through two different
processes before final output. The cost summary for each
process is given below. You needs to estimate the costing
for each process and final inventory valuation.

Particulars Process 1 Process 2

Raw Materials Utilised (Units) 12,500
Raw material Cost Per Unit (Rs.) 19
Production & Transfer 11,250 8,575
Direct labour (Rs.) 12,52,600 10,55,244
Direct expenses (% DL) 76% 65%
Manufacturing Overhead(% DL) 12% 11%
Number finished goods produced 8250