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Job Costing

A job is a cost unit, which consists of a single order/Contract.


Job costing is a method applied where work is undertaken to customer’s special
requirement & each order is of comparatively short duration.

Order-specific costing technique, used in situations where each job is different


and is performed to the customer's specifications

Job Costing involves computations to calculate the costs involved in business


which manufacturing goods. These costs are recorded in ledger accounts
throughout the year and are then shown in the final trial balance before the
preparing of the manufacturing statement.

In a job costing system, costs are accumulated by job.


For a typical job, direct material and direct labor are tracked at their actual
values. These are recorded and tracked until the job is completed. Overhead is
applied either by using a Absorbtion rate or by using an Activity Based
Costing (ABC) cost driver.
In either case, once overhead is added, the total cost for the job can be
determined. Upon completion, the costs are transferred out of Work in Process
to Finished Goods (Cost of Goods Sold for service industries).

Components of Job Costing


 Direct Material
 Direct Labour
 Direct Expense
 Production Overhead
 Fixed Cost
 Rectification Cost

Rectification Cost
If the output is found to be sub-standard, it may be possible to rectify the fault
Rectification Cost
 Became part of Direct cost if it occurs not frequently
& directly traceable on final product.

 Became part of Production Overhead if it occurs


usually in the general course of Business.

Work in Process
The value of WIP is simple the sum of the costs incurred on incomplete Job.

Prepared by: Mohammad Faizan Farooq Qadri Attari


http://www.ffqacca.co.cc
faizanacca@yahoo.com
Question # FFQA1
The following statements refer to organisations using job costing:
(i) Work is done to customer specification.
(ii) Work is usually completed within a relatively short period of time.
(iii) Products manufactured tend to be all identical.
Which two of these statements are CORRECT?
A (i) and (ii) B (i) and (iii) C (ii) and (iii)

Question # FFQA2
Which of the following is NOT CORRECT?
A Contract costing is appropriate if each unit of production is unique and takes a
considerable length of time to complete.

B Batch costing refers to a system where either job or process costing techniques
are used to manufacture a product.

C Rectification costs should be charged to production overheads if the costs can


not be specifically traced to a job.

D Job costing is required when each unit of production is unique and production
is of long duration

Question # FFQA3
A company operates a job costing system. Job number 1012 requires £45 of direct
materials and £30 of direct labour. Direct labour is paid at the rate of £7·50 per
hour. Production overheads are absorbed at a rate of £12·50 per direct labour
hour and non-production overheads are absorbed at a rate of 60% of prime cost.
What is the total cost of job number 1012?
A £170 B £195 C £200 D £240

Question # FFQA4
A company operates a job costing system. Job number 605 requires £300 of
direct materials and £400 of direct labour. Direct labour is paid at the rate of £8
per hour. Production overheads are absorbed at a rate of £26 per direct labour
hour and non-production overheads are absorbed at a rate of 120% of prime cost.
What is the total cost of job number 605?
A £2,000 B £2,400 C £2,840 D £4,400

Prepared by: Mohammad Faizan Farooq Qadri Attari


http://www.ffqacca.co.cc
faizanacca@yahoo.com
Question # FFQA5
Consider the following statements:
(i) Job costing is only applicable to service organisations.
(ii) Batch costing can be used when a number of identical products are
manufactured together to go into finished stock.

Is each statement TRUE or FALSE?


Statement (i) Statement (ii)
A False False
B False True
C True True
D True False

Question # FFQA6
A company operates a job costing system. Job number 506 requires £64 of direct
materials and 7 hours of direct labour. Direct labour is paid £8 per hour.
Production overheads are absorbed at the rate of £20 per direct labour hour
and non-production overheads at a rate of 60% of prime cost.
What is the total cost of job number 506?
A £332 B £352 C £416 D £448

Question # FFQA7
A company operates a job costing system. Job 812 requires £60 of direct
materials, £40 of direct labour and £20 of direct expenses. Direct labour is paid
£8 per hour. Production overheads are absorbed at a rate of £16 per direct
labour hour and non-production overheads are absorbed at a rate of 60% of
prime cost.
What is the total cost of Job 812?
A £240 B £260 C £272 D £320

Question # FFQA8
A company operates a job costing system. Job number 607 requires £300 of
direct materials, £400 of direct labour and £100 of direct expenses. Direct labour
is paid at a rate of £8 per hour. Production overheads are absorbed at a rate of
£40 per direct labour hour and non-production overheads are absorbed at a rate
of 150% of prime cost.
What is the total cost of job number 607?
A £3,750 B £3,850 C £4,000 D £4,200

Prepared by: Mohammad Faizan Farooq Qadri Attari


http://www.ffqacca.co.cc
faizanacca@yahoo.com
Question # FFQA9
Mahool Ltd manufactures many different products in a factory that has two
production cost centres (T and W) and several service cost centres.

The total budgeted overhead costs (after the allocation, apportionment and
reapportionment of service cost centre costs), and other information for
production cost centres T and W are as follows:

Cost centre T W
Budgeted Basis of overhead £780,000 £173,400
Budgeted activity 16,250 machine hours 14,450 direct labour
hours

Required:
Calculate the overhead absorption rates for cost centres T and W.

Question # FFQA10
The prime cost of product PP, one of the products made by Mahool Ltd, is as
follows:
£ per unit
Direct material 10
Direct labour:
Cost centre T 14
Cost centre W 21

One unit of product PP takes 35 minutes of machine time in cost centre T.


The direct labour in cost centre T is paid £7 per hour and £6 per hour in cost
centre W.

Calculate the total production cost for one unit of PP.

Prepared by: Mohammad Faizan Farooq Qadri Attari


http://www.ffqacca.co.cc
faizanacca@yahoo.com