OB AND BATCH CosTING ase rec and processes of determining costs of a product b ds of costing refer to procedures and steps to be followed { F determining and presenting costs. The important methods of aii ; costing. 2. Process costing 3. Multiple costing and 4. Farm aie ING: It is also known as Job order costing or specific order costing order costing. Job costing is a method (or i a : % system) of determinin: of individual job or work order. , Kohler in his ‘Dictionary for Accountants’ defines job costing as ‘a of cost accounting whereby cost is complied for a specific quality ‘oduct, equipment, repair or other service that moves through ion process as a continuously identifiable unit, applicable material, labour, direct expense, and usually a calculated portion of the overhead being charged to job order.’ Nature of job costing: Job costing is a system of accumulating elements of cost separately for each job or work order. Under this system, costs are assigned to, and accumulated for each job. Each job is treated as a cost unit under this method of costing. It is applicable where the job (cost unit) maintains its separate identity all through production and where it is desired to ascertain profit or loss in respect of each job (cost unit). _ Nature of job: A job may mean: 1) one product, e.g. special industrial containers, engines, heavy power generating equipment or 2) a number of identical products e.g., printing work, toys, furniture, machine tools, lifts, cranes etc. or E 3) very large product e.g. ship, air craft, dock crane, mining equipment etc.or 4) construction work e.g., factory building, industrial set-ups, commercial complex etc. or 5) service, e.g. management consultancy, advertising services, interior decorations etc. Nature of job order or job order industry: The features of job or job order _ industry are as follows: : 1) Each job has its own character. Jobs or orders are not necessarily alike. ; :in Ssterrninstion5 tee ab wom s morna fe oheeey a Paecuvese een eeces oe Important fimitations of job costing are as follows. Clerical work and paper work There are more chances in Such cases, e.g. wrong posting of cost of one job jo the rie 8S cost is ascertained for each job separately of every job is ascertained after the completion of of the information is historic in nature It is not of much olan tthe future cost where drastic economic changes lake oun @ ‘and cost control are much easier said tan done in practios: In Job costing: Procedure followed in job c: sting |S as follows of quotations, designs etc. Letter of request for quotations. terms ‘specific designs may be asked for by the customer Detaile: cost of the job is prepared by the cost accountant. This @ Dasec! p ce and the adjustments required. The estimated cost of (he is dispatched to the prospective customer g of orders: If the customer is satisfied with Ih: terms, conditions he will place the order for execution of the order g production (of job) order: Production contro! department recewes ‘ prepares production order or job Order or work order it may alec d by the engineering department. It gives complete instructions to to enable them to carry Out the job, to the s.orekeeper lo sore inventory for that job and to the cost accountant to accumulate and different elements ot costs in the job cost sheet order consists of the following paricuiars production order ‘order number (each job order is given @ number). dale ( weaue (the date " order is prepared, details of the work to Be Undertaken oF cription of the articles to be produces. quantity to be produced, detailed or sketch, date of starting the work, date (or We) of completing the list of materials, tools etc. to be used. sequence of production process od order is duly signed by the production manager of other ng is the job cost sheet includes werems eves ewnmee 100 = BO, profit 2 x 18,000 « ta,780 1 Factory overhead: Factory overhead 1% 20% of Imctory cost ‘cost = Prime cost + Factory overhead. Cost is 100, factory overhead (20%) will be 20 and prime cost will be a0 5,000 Administration overhead: Adm Overhead & LO Cost of protwoton: Production = Factory cost + Administration overhead ‘Cost = Cost of production - Administration overhead Production is 100, administration overhead (16.67%) will be 16.67 and will be 83,33 (\,e.100 - 16.67) factory cost is 83.33, administration overhead is 16 67 ott €25,000, acirilalRMah ayernand io 18.87 x 26,000 » 6,001 oa> a JB-6 Job and Batch Costing Materials Wages Dept. A 60 hours x %3 180 aa B 40 hours x %2 80 C 20 hours x %5 100 360 PRIME COST 3 5,380 Works oh: Dept. A (%5,000 = 5,000 hrs) x 60 hrs «60 B (%3,000 + 1,500 hrs) x 40 hrs «80 C (82,000 +500 his) x 20 hs 80 Fixed expenses: per hour = (820,000 +10,000 hrs) = %2 for Dept. A+B+C = (60 + 40 + 20hrs) x 2-240 460 WORKS COST / TOTAL COST 5,840 PROFIT (25% .on selling price or 1/3 on cost) 1,947 JOB PRICE 7,787 5. R.K.Ltd. had to quote for a price for job No.31. From the following data prepare a job cost sheet. Direct material 35 units at %5 per unit Direct wages: Dept. A: 12 hours @ %2 per hour Dept. B : 20 hours @ 21.5 per hour Additional information: Dept. A: Variable overheads 718,000 Hours worked 180,009 Dept. B : Variable overheads 718,000 Hours worked 10,000 Fixed works overhead for the company: %1,00,000 Total hours worked: 50,000 Profit is taken at 20% of the selling price Solution: R.K.Ltd. Job number: 31 Cost sheet Particulars Units} deg Per ya Direct materials 35 units x %5 175.00 Direct labour: Dept.A 12 hours x %2 24 B 20 hours x %1.5 30 54.00 PRIME COST 229.00 Variable overhead: Dept. A (%18,000 + 18,000 hrs) x 12 hrs 12 B (18,000 + 10,000 hrs) x 20 hrs 36 48.00 Fixed overhead: per hour (%1,00,000 + 50,000 hrs) = %2 for Dept. A+B = (12 hrs + 20 hrs) x %2 64.00 WORKS COST / TOTAL COST 341.00 PROFIT (20% on selling price or 25% on total cost) 85.25 JOB PRICE 426.25| 6. The following information is obtained from the books of Yogeendra Engineering Ltd. concerning job No.42413. Material used 2500. Direct wages - Department A - 10 hrs @ %2.5 per hour. B - 8Factory overhead (60% of wages) Administration overhead (20% of worke eoat) cost Selling & dis, overhead (20% of works coat + 15%) TOTAL COST PROFIT (20% on total coat) ESTIMATED SALES 000 800 4,084,800 80,900 4,08, 400 Quantity | Total coat « 4,280,000 76,000 4,086,000 46,000 2,40,000 48,000 2,008,000 69,000 4,87,000 71,400 Par unit t 420,400 Note 1, Factory overhead as a percentage of direet wages = -facoyoveeed, y 109 BO 100» 80% 48,000 2 Administration overheads as a Admn, overhead Be oa con OO arco reantage of works GOR) x 100 & 20% 3. Selling and distribution overheads as a percentage ‘of works coat 2,10,000 SaDoverhoad 499 = 62,500. 109 = 26% cost 4 Profit as a percentage on sales and on total cost: =x 100 = 495,400 Profit Total cost £0,900, X 100 = 16.67% or 20% on total oat Se oot 8. The following information relates to a factory consisting of two departments, viz. Aand B. All products pass through these two departments < A (®) 0 @BOO» Op 100 = fom 10, AB OO. HOKIOMR ee nl ovlera, Ite manufacturing section consists apartanents, fa the practice of the eaneem to prepare anigets for the purporea of control and absorption of overheads. Famawing fntormation extracted from the fiat quarter budget of the company: Rartioulars Total (®) Dept, X (®) Dept ¥ (%) Dept. 2 (%) Material 40,000 10,000 20,000 90,000 Dwr@et labour CORE 28,600 ¥,000 8,000 8,500 Variable factory overheads 18,000 5,000 4,000 6,000 Fixed factory overheads 18,000 ao os . Adioyiniatrative overheads 10,000 oes Sod _ Maonine hours 20,000 6,000 4,000 10,000 The factory overheads are absorbed on the basis of machine hours and the adininiatyation overheads are absorbed as a percentage of factory cost, ‘The concern haa received an order from ita regular customer for the supply of a apeoitio variety of products that pase through two departments only, ke, X and Y. Wr reapect of the order, the following particulars are available; Department X Department Y Material coat 1,600 2,500 Direct labour cost 700 800 Machine hours 600 400 Prepare a job order cost sheet and ascertain the price of the order, it the margin ‘of 28% on gales ia added to the total cost of production aie eee Solution: A&C. mated cost sheet = ee or Partioul Units} Total | Per unit ie yr ne q z Dept, X 1,800) Y 2,500] 4,000 bi uur Dept, X 700 Y 800) 1,500] ie COST 5,500 Factory overhoads (absorbed on the bass of mnachine hours) Dept. X (5,000 + 6,000 tvs) x 600 he 600 ie Y (84,000 + 4,000 ha) x 400 hrs. 400!where job costing ts adopted are manufacturing ‘automabites, computers, textiion, ready: costing. Accounting system in Balen cos:RARE QURFER) © Geter, by le ee y Hocme e |) we (COTE came Leu orn a0hh uertity 6 weattenen catermns ne Peet 1 AlEs HO RE MRED Shay OE Grmpmrair ors Geeeertty coe 16 tant per DED epecn Whe Gen 4 Ke etemen’ ous 6 Tee Meat oe a Ene ee el Se he mares. tal Deere 8 be Fe pan Hing He Bow we » agrees te cute ee We RR RN Tg oF wen alter PRION laborer 3) Gimmes sgjveorwaniiss vesiemmniy a sat Wee Fah oy Bilap cast Hermans wilh the MeMmaRe Te HuTiRr 4 Geter _-~ ORR agri <9" Wine RIN Homage, MORRIE Hoey mnrrunes on! fia ‘ »JB - 15 Job and Batch Costing size of the batch. The carrying cost of inventory is estimated to be 5 paise per month, per unit. The demand for the product is 250 units per month and this demand is constant. Calculate the economic batch quantity. Solution: Economic Batch Quantity (EBQ) 2 x Usage (per month/year) x Setting up cost EBQ = Carrying cost per unit (per month/year) (Basis: month) EBQ = |2X250x%240_ | 1,20,000 _ 4.549 units GF 20.05 20.05 : (Basis: year) EBQ = |2%250x 12x 240 _ [14,40,000 _ 4 549 units 20.60 0.60 : 13. Compute the economic batch quantity for a company using batch costing, with the following information: Annual demand for the parts: 8,000 units. Setting up cost: 7200 Cost of manufacture per unit: %400. Rate of interest per annum: 10% Solution: Economic Batch Quantity | 2 x Usage (or annual demand) x Setting up cost Carrying cost per unit (or cost of manufacture x rate of interest) = [2x8000x%200 _ /32,00,000 _ 292.84 or 283 units 2400 x 10% 240 14. Compute the economic batch quantity for a company using batch costing with the following information: Monthly demand for the component: 2,000 units. Setting up cost per batch: %120. Annual rate of interest 6%. Cost of manufacture per unit: %6.00. Solution: Economic batch quantity is 2x Usage (per year) x Setting up cost - Carrying cost per unit (per year) 2 x (2,000 units x 12 months) x 7120 = 4,000 Units %6 x 6% 145. From the following data prepare a cost sheet for batch No.S 24 of 1,000 units. Materials : 760,000 Department A Department B Department C Direct labour 200 hours @ 710 100 hours @ %5 100 hours @ %15 Overhead 215 per hour %20 per hour 210 per hour Solution: Cost Sheet Batch No. S 24 Units: 1,000 _ T st rsteie Units ota |Per ae | Material 60,000 Direct labour: Department A 200 x 710 2,000100 x 5 500 100 x %15 1,500 _4,000 64,000 200 x 815 3,000 100 x %20 2,000 3 © 100 x %10 1,000 6,000 WORKS COST 70,000 I ! 16. Component SWIOX is manufactured in shop No.11. Material cost is %20 per component. Each component takes 6 minutes to produce and the machine operator's wage is %15 per hour. Machine hour rate is %72. Setting up of the machine to produce the component takes 3 hours for the operator You are required to prepare cost sheet showing the setting up costs and the total cost for the batch and cost per component assuming a batch size of: (a) 100 components and (b) 150 components. Solution: Statement of cost Machine shop No: 11 Component: SWIOX Particulars Batch Size 100 components 150 components Setting cost (fixed): ™ z zt z Wages 3 hrs x 15 45 S hrs x M15, 45 Machine expenses !3 hrs x °72 216) 261)3 hrs x 372 216) 261 Production cost (variable): Material 100 x %20 2,000 150 x 720 3,000) Wages 100x6minx <5 150 1506 min. x <5 72 a we ni Machine expenses | 100 x 6 minx Somin 720] 2,870] 150 x 6 min. x earl 1,080) 4,30 TOTAL COST 3,131 4,566 Cost per component |%3131 + 100 31.31 |%4566 + 150 "i 30.44 17. Following information relates to the manufacturing of a component X-101 in cost centre: Cost of materials ; 6 paise per component. Operators’ wages : 72 paise per hour. Machine hour rate y 21.50. Setting up time of the machine: 2 hours and 20 minutes Manufacturing time 7 10 minutes per component Prepare a cost sheet showing both production and setting up costs: total and p°’ unit, when the batch consists of 100 components. Solution: Batch cost sheet Component: X-101 Batch size: 100 components Particulars total | per ulCE me 29 a ome 1 IO A 8 cement me et cae OEP ee ee mene whe wee date ————-_— # (0 — om ” 7 seaeny oe toe cr tee +o hebraaty 1900 oe Bas om +m LaOUt He pane ai the cate of TOO pe Mane —— . —s _ SRE a coms ent grt, I Seb Parinions |r a de * * he ® | fewe® |) ee | Perens (#) Toe $ anu a paw = a a cost hee = a a ote) | ome + $m 2 cost eee “ ver) “ 8a : rae 5 41 20 » 49 0 a