CHAPTER 5

Learning Objectives
At the end of this chapter, you should be able to:
Define the job costing concept.
Explain the features of job costing .
Prepare Job Cost Card.
Calculate selling price for job.
 CIMA defined

“form of specific order costing which applies where

work is undertaken to customer’s special requirements
and each order is of comparatively short duration”

• Job costing is a method of collecting costs

of each job or order.

• A “job” may mean one unit of product or it

may mean many units of identical or similar
products.

• Basic principles of job costing: cost are

collected and charged to each job, which are
then charged to the customer plus a
percentage of profit.
• Each job has its own characteristics
(unique) that cause it to differ from any
other. Therefore, cost of each unit must
be calculated separately.

• There is an accumulation of expenditure

incurred to the job & separate account is
kept for each job.
 Example of businesses
Repair and maintenance of cars

Making of coats, jackets or costumes

Making of rubber stamps

Catering business

Making of customized furniture

Picture frame making

wedding cake and gown

 CHARACTERISTICS OF JOB COSTING
CHARACTERISTIC
Job/Product Each job has unique characteristics

Unit Produced -Each unit produced according to customer’s

special requirement/ specification.
-Many different products are produced each
period.
Job size (No of unit Small no of unit of products produced (the
produced) product is not for mass market).
Duration Short duration
Production In factory or workshop
Cost charged The cost of each job is charged separately to
particular job based on Job Cost Card
(separate account for each job).
 Objectives of job costing:
• It provides accurate cost information for each job
or product.
• It enables management to reduce the cost by
making comparison of each element of actual
costs with estimated ones.
• It helps management to measure the efficiency
and inefficiency for each job to take effective
decision making.
• It enables management to provide proper
valuation of work in progress.
•
 STEPS OF JOBBING THE WORK
Client will
Taking the Estimate Customer
approach
customer cost & add agree to the
supplier &
specific order margin to selling price
indicate
requirement identify the set
requirements
selling price

Prepare Material
When all materials, The job will be
Requisition Note
labour and carried out with
& Purchase
equipment specific job order
Requisition Note
available in the reference
to apply for
factory, then the number. (E.g. Job
material to be
job can be started. 709)
used
 Job Cost Card
• Each job is given a job number that identifies it from every other job.
Besides that, it also has a card prepared for it, which is used to
collect all the cost data relating to the job. This card is called “Job
Cost Card”.

• How to prepare Job Cost Card?

– Prepared by adding all the costs incurred in completing job.

– During the production process, all direct costs are charged to

the job.-PRIME COST

– Share of the overheads of each cost center that the job passes
through is charged by applying the overhead absorption rates
(OAR)-PRODUCTION OVERHEAD

– As the job is completed and it become finished goods, non

manufacturing cost are added up to make up the total cost.-
NON-PRODUCTION OVERHEAD
 FORMAT OF JOB COST CARD
Company Names
Job Cost Statement
Job No :
PRIME COST: RM
Direct material xx
Direct labour identify from the question xx
Direct expenses xx
TOTAL PRIME COST XXX
ADD:PRODUCTION OVERHEAD:
Indirect material xx
Indirect labour Identify from the xx
Indirect Expenses question (if any) xx
Overhead cost: 1. Machining department (OAR x Basis) xx
2. Assembly department (OAR x Basis) xx
TOTAL PRODUCTION OVERHEAD XXX
ADD:NON-PRODUCTION COST
Administration cost identify from xx
Marketing, Selling and Distribution the question xx
Research and development cost (if any) xx
TOTAL COST XXX
Profit XX
SELLING PRICE XXX
 Selling price
• Job cost card need to show the
calculation of selling price.

• The calculation of selling price = cost

+ profit

• The profit is calculated either based on

cost (mark-up) or selling price(margin)

11
Profit can be calculated as follows:
Profit on cost (Mark-Up) Profit on selling price (Margin)
Example: Example:
Total costs of product A = RM96,000 Total costs of product A = RM96,000

Calculate the selling price of product A if Calculate the selling price if profit margin is
the profit is 50% markup on total costs. 20%.

Answer: Answer:
RM
RM

Total costs 96,000 Total costs 96,000

+ profit + profit
(50% x 96,000) 48,000 (20% profit margin) 24,000
Selling price 144,000 Selling price 120,000

Profit = 20%SP
SP = TC + PROFIT
SP = 96,000 + 20%SP
SP= 96,000/80%
SP = 120,000
Profit = SP – TC
Profit = 120,000-96,000
Profit= 24,000
 Advantages of Job Costing
• It provides more accurate costing because of all cost are compiled
and specifically identified with a specific order or product.
• Job cost sheets can be used to control efficiently and estimate
future work.
• It helps management in making comparison of each elements of
actual cost with estimates ones and cost of the job with similar
previous jobs which can reduce the cost incurred; bidding or submit
quotation on similar job in the future; evaluate worker performance,
developing marketing strategies and developing future production
goals.
• It enables management to ascertain the profit or loss earned by
each job.
• It helps management to identify profitable and unprofitable jobs.
• Spoilage and defective works can be easily identified with each job
or person.