JOB COSTING

Dr . D. Ayub Khan Dawood

Prof and Dean
School of Social Sciences and Humanities
 Learning Objectives

After studying this unit, you will be able to:

 Explain the meaning and definition of job costing
 Understand the procedure of job costing
 Know the batch costing
 Explain the economic order quantity

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 Meaning of Job Costing
Job costing as a distinctive method costing is a form of specific order costing which
is adopted to execute the work strictly according to customer’s specification. The
production process depends upon the member of orders received from customers.

The cost is ascertained separately for each job as every work order differs from
customers to customers. The purpose of job costing is to ascertain the profit or loss
made on each job.

Examples :
 Retail companies
 Law firms and accounting businesses
 Medical services
 Film studios
 Construction companies
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 Principles of Job Costing

• Analysis and ascertainment of cost of each unit of production

• Control and regulate cost
• Determine the profitability

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 Characteristics of Job Costing
• The production is always against customer's orders and not for stock.
• Each job has its own characteristics and needs special treatment.
• There is no uniformity in the flow of production from department to department.
• The department through which the job has to be processed depends purely on the
nature of each job.
• The work-in-progress differs from period to period according to the number of jobs
on hand. Therefore, cost is ascertained for each job.
• Job costing is applicable to engineering concerns, printing presses, repair shops,
automobile garages.
• There is no uniformity in the flow of production from one department to another.
• It is the nature of each job which determines the departments through which it is to
be processed.
• The main purpose of job costing is to determine the profit or loss made on each job.
 
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 Advantages of Job Costing
1. It gives a detailed analysis of costs of materials, labour, and overheads.
2. It enables the management to detect which jobs are more profitable than others,
which are less profitable and which are incurring losses.
3. It provides a basis for estimating the cost of similar jobs taken upon future.
4. It also helps in future production planning.
5. Spoilage and defective work can be easily identified and responsibility may be
fixed on departments.
6. It estimates have been prepared in advance, actual can be compared with
estimates for controlling costs.
7. In case of government contracts on cost-plus basis, it gives cost data which
determines contract price.  

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 Limitations of Job Costing

1. It involves more clerical work. This leads to more expensive.

2. With the increase in clerical work, the chances of errors also increase.
3. Job costing is an actual costing method. It does not give for the control of cost
unless it is used with standard costing system.
4. Determination of predetermined overhead rates may involve budgeting of
overhead expenses.

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Procedure for Job Order Costing System

1. Receiving an enquiry from the customer regarding price, quality etc.

2. Make an estimation of the price of the job after considering the cost
incurred for the execution of similar job in the previous year
3. Receiving an order, if the customer is satisfied with the quotation price
and other terms of execution.
4. If the job is accepted, a production order is made by the Planning
department.
5. The costs are collected and recorded for each job under separate
production order Number, and a Job Cost Sheet is maintained for that
purpose.
6. On completion of job, a completion report is sent to costing department.

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Element of Cost in Job Costing

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Example:

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 BATCH COSTING

• Batch costing is another form of job costing. Under this method, homogeneous
products are taken as cost unit. A batch consists of a specific number of products
or units or articles. The number varies from one batch to another. Hence, batch
cost is used to determine the cost per unit or article per unit.

• CIMA defines Batch Costing as, that form of specific order costing which applies
where similar articles are manufactured in batches either for sale or for use within
the undertaking.

• Examples: Ready-made Garments, Shoes, Toys, Bicycle parts, Biscuits and

Confectionary, Drug industries and Watches  

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Economic Batch Quantity (EBQ)

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Example:

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