What is job costing ?

job costing is a method of cost accounting whereby cost is compiled for a specific quantity of product ,equipment repairs or other service that moves through the production process as a continuously identifiable unit by charging applicable material, direct labour , direct expenses & calculated portion of the overhead.

Features of job order

costing
The production is generally against customers order but not for stock. Each job has its own characteristics & need special treatment. Each job is treated as cost unit under this method of costing. The cost of production of every job is ascertained after the completion of the job. WIP differs from period to period according to the number of jobs in hand.

Objectives of job order

costing
It helps the management to provide a valuation of WIP . It helps the management to control the operational inefficiency by making a comparison of actual cost with estimated ones. It helps to find out the cost of production of every job or order & to know the profit & loss made on its execution .

Advantages - of job order cost system

It records costs more accurately & facilitates cost control by comparing actual with estimates. It provides a basis for estimating the cost of similar jobs taken up in future and thus helps in future production planning. It helps in identification of spoilage and defectives with the respective production order. It is useful in quoting cost + contract.

Disadvantage- of job order costing

Cost comparision among different jobs becomes difficult specially when changes take place. The scope of committing mistake are enough as the cost of one job may be wrongly posted to the cost of other job.

(For example) :The information given has been taken from the cost records of a factory in
respect of job no. 707 : direct material 4010 Rs wages: Department A : 60 hours @ Rs 3 per hr B : 40 hours @ Rs 2 per hr C : 20 hours @ Rs 5 per hr The variable overheads are as follows : Department A : Rs 5,000 for 5,000 hrs B : Rs 3,000 for 1500 hrs C : Rs 2,000 for 500 hrs fixed expenses estimated at Rs 20,000 for 10,000 working hours. -: calculate the cost of the job no.707 and the price for the job to give a profit of 25 % on the selling price.

 Solution -: (cost sheet for job no.707) RS Direct materials: WAGES: Department A :60* Rs 3 Department B :40* Rs 2 Department C :20* Rs 5 prime cost 180 80 100 360 4,370 60 80 40 RS 4,010

overheads variable (1): Department A: 60* Rs 1 Department B: 40* Rs 2 Department C: 20* Rs 4 Fixed (2) :120 hours @ Rs 2 per hour

220 240 4,830 Profit (33.33% on cost or 25% on selling price) 1,610 selling price 6,440