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JOB COSTING

DEFINITION OF JOB COSTING


The term Job Costing may be defines as "in job costing, costs are collected and accumulated according to jobs, contracts, products or work orders. Each job is treated as a separat~ entity for the purpose of costing. The material and labour costs are complied through the respective abstracts and overheads are charged on predetermined basis to arrive at the total cost."

Features of Job Order Costing


Some of the important features of this method of costing are given below: (1) Works or production are undertaken against the order of customers. (2) Production is not as a continuous process because each job is accepted by work order basis not for stock or future sales. (3) Each job is treated as a separate entity for the purpose of costing. (4) There is no unifonnity in the flow of production because of different production process. (5) Costs are collected and accumulated after the completion of each job or products in order to find out profit or loss on each job. (6) The jobs differ from each other requiring separate work in progress maintained for each job.

Objectives of Job Order Costing


The following are the important objectives of Job Costing: (1) Job costing provides accurate cost information for each job or product. (2) It enables management to reduce the cost by making comparison of each elements of actual costs with estimated ones. (3) It helps management to measure the operational efficiency and inefficiency for each job or works to take effective decision making. (4) This method enables management to providing proper valuation of work in progress.

Advantages of Job Order Costing


The following are the various advantages of Job order costing: (1) It helps management to identifying profitable and unprofitable jobs. (2) It provides required information for preparation of estimates while submitting quotations for similar jobs.

(3) It facilitates effective cost control by evaluating operational efficiency of each job or works. (4) It helps management to fix selling price of each order or each job. (5) Spoilage and defective works can be easily identified with each job or person. (6) It facilitates the application cost-plus formula of pricing of large contracts. (7) It facilitates the introduction of budgetary control of overheads, since the overheads are charged on predetermined basis to arrive at the total costs.

Disadvantages
(1) This method is relatively involve more labour intensive. Thus, it is expensive. (2) With increase in clerical work, there are chances for committing more errors and mistakes. (3) Job Costing is essentially historical costing. It does not provide for the control of cost unless it is combined with estimated or standard costing system. (4) It is difficult to make cost comparison among different jobs because each job has its own features.

BATCH COSTING
Meaning
In Batch Costing, a lot of similar units which comprise the batch may be used as a cost unit for ascertainment of cost. Separate Cost Sheet is maintained for each batch by assigning a batch number. Cost per unit of product is determined by dividing the total cost of a batch by the number of units of that batch. Batch costing is used in number drug industries, ready made garment industries, electronic components manufacture, TV sets, radio etc.

Determination of Economic Batch Quantity (EBQ)


Determination of economic batch lot is the important work in batch costing. The two types of costs involved in batch costing are (1) Set up cost and (2) Carrying cost. If the batch size is increased. set up cost per unit will come down and the carrying cost will increase. It the batch size is reduced. set up cost per unit will increase and the carrying cost will come down. Economic Batch Quantity will balance these two opposing costs. EBQ is calculated by using the following formula: Economic Batch Quantity (EBQ) =

Where : D = Annual Production or Demand in Units S = Setup Cost per batch C = Annual Holding or Carrying Cost per unit

Difference between Job Costing and Batch Costing


Job Costing (I) Costs are collected and accumulated according to Jobs, Contracts or Work Order. (2) Each job is treated as a separate entity for the purpose of costing. (3) The materials and labour costs are complied through the respective abstracts and overheads are charged on predetermined basis. (4) Costs are found out at the stage of completion of the job. (5) Job costing is used in Printing, Furniture making, Ship Building etc. Batch Costing (I) Lot of similar units which comprise the batch may be used as a cost unit for ascertainment of cost. (2) Separate cost sheet is maintained for each batch by assigning a batch number. (3) Separate cost sheet is maintained for each batch by assigning a batch manner. (4) Cost per unit of product is determined by dividing the total cost of a batch by the number of units of that batch. (5) Batch costing is used in drug industries, readymade garments, T.V. sets, Radio & Electronic component manufacture.

Contract Costing
Meaning of Contract Costing

Contract costing is that method of costing in cost accounting which is used to collect and identify all the expenses relating to a specific contract. For this purpose, Contractor has to maintain contract ledger in which he has to show contract account. Contract here means an agreement to complete construction of building or any other engineering work which need many days, months or years to complete.
Contract Account

Contact account is that account who shows all the expenses in its debit side. Credit side of this account, we show value contract price or work certified value. Difference between debit and credit side of will show notional profit or loss.

Following are main Contract Expenses and Costs which shows in Contract Account under Contract Costing :1. Material Cost

Material or raw material which is used for construction is the main expense or contract cost and it will be debited in contract account. It is supplied from store or purchased from market directly. If material is transferred from any other contract, then its cost will be adjusted on the basis of material transfer note.
2. Labor Cost

On the basis of wages analysis sheet, labor cost is calculated for a specific contract order. If same labourer is used more than one contract, then time devoted to each contract is calculated and on this basis, labor cost is allocated.
3. Direct Expenses

We also add direct expenses, if any.


4. Overheads

Overheads can be allocated on the basis of some % on cost of material, wages or prime cost or MHR (Machine Hour rate) or LHR (Labour Hour Rate)
5. Sub- Contract Cost

It will also include in contract cost, if to complete sub-construction for main construction.
6. Cost of Extra Work.