job-costing-batch-costing

```ACOF 014
Introduction to Costing
Semester 2 2008 / 2009
JOB ORDER COSTING &amp; BATCH COSTING
Learning Outcomes
At the end of this lecture, students should be able to:
 Describe or explain job order costing systems
 Estimate product costs using job bid sheets
 Calculate actual product costs using job cost sheets
 Describe batch costing
 Explain the differences between job order costing &amp; batch costing
What are job order costing (JOC) systems?
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A job order costing system estimates the cost of manufacturing products for
different jobs required for specific customers orders
Each job may differ in terms of:
- Materials content
- Hours of labor required
- Machine time required
- Demand placed on support activity resources (i.e., manufacturing overhead)
- Special customer needs that require customized production
With such variety, managers need to understand the costs of individual jobs so that
they can assess product and customer profitability
Bidding using JOC
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Firms are sometimes required to bid on jobs before customers decide to place an
order with them
Costs need to be estimated for each job in order to prepare a bid
Job order costing systems provide the means to estimate these costs
A job bid sheet provides a format for recording the estimated costs:
Panel 1: identifies the customer, the product, and the number of units required
Bid Number: J4369
Customer: Michigan Motors
Product: Automobile engine valves (Valve #L181)
Engineering Design Number: JDR-103
Number of Units: 1,500
Date: July 6, 2006
1
Materials
Quantity
Price
Amount
Panel
2: lists
all3”
the materials required to complete
Bar steel
stock
3,600 the job
RM11.30
RM40,680
Subassembly
39.00
Total direct materials
1,500
58,500
RM99,180
Panel 3: lists the amount of direct labor required for the job
Labor
Hours
Rate
Lathe operators
480
RM26.00
RM12,480
Assembly workers
900
18.00
16,200
Total direct labor
1,380
RM28,680
Panel 4: contains estimates for support costs / overhead
Support Costs
Amount
Amount
600 machine-hours @ RM40/hour
RM24,000
1,380 direct labor hours @RM36/hour
49,680
Total support costs
Panel 5: summarizes the total costs estimated for the job
RM73,680
Direct material
RM 99,180
Direct labor
Support costs
73,680
Total costs
RM201,540
A markup rate is applied to translate the estimated cost into a bid price
Total
28,680
costs
RM201,540
25%
markup
50,385
Bid
price
RM251,925
RM134.36
RM167.95
Unit cost
Unit price
JOC &amp; Markup
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Markup rate – percent by which job costs are marked up
The markup rate depends on a variety of factors:
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The amount of support costs excluded from the cost driver rate
The target rate of return desired by the corporation
Competitive intensity
Past bidding strategies adopted by key competitors
Demand conditions
Overall product-market strategies
Recording actual JOC
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Job order cost accounting systems record costs actually incurred on individual jobs as
they are produced
Copies of all materials requisition notes and worker time cards are forwarded to the
accounting department, which then posts them on a job cost sheet
The system calculates total costs for the portion of the job completed
Structure of job cost sheet are almost the same as job bid sheet:
Panel 1: Miscellaneous details
- Panel 2: Direct materials
- Panel 3: Direct labor
- Panel 4: Support costs / Overhead
- Panel 5: Total cost, no. of units produced, cost per unit
Illustration on calculating JOC
Portland Electronics Inc. delivered 1000 custom-designed computer monitors on
February 10 to its customer, Video Shack; they had been ordered on January 1. The
following cost information was compiled in connection with this order:
Direct materials used:
Part A327: 1 unit costing RM60 per monitor
Part B149: 1 unit costing RM120 per monitor
Direct labour used:
Assembly: 6 hours per monitor at the rate of RM10 per hour
Inspection: 1 hour per monitor at the rate of RM12 per hour
In addition, manufacturing support costs are applied to the job at the rate of RM5 per
direct labour hour. The selling price for each monitor is RM350.
Required: Prepare job cost sheet for this job and determine cost per monitor
3
(a)
Portland Electronics, Inc.: Job Cost Sheet
Customer: Video Shack
Product: Computer Monitors, 1,000 units
Direct material
Quantity
Price
Part A327
1,000 units
RM60
Part B149
1,000 units
120
Total direct material cost
Direct labor
Assembly
Inspection
Total direct labor cost
Hours
6,000
1,000
7,000
Support costs
7,000 Direct labor hours
@ RM5 per hour
Amount
RM60,000
12,000
RM72,000
Amount
RM35,000
Total cost
RM287,000
Number of units produced
(b)
Rate
RM10
12
Amount
RM60,000
120,000
RM180,000
1,000
Cost per monitor
RM287
Batch Costing
What is it?
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A form of costing which applies where quantity of identical products are
manufactured as a batch
Occurs when customer orders a quantity of identical items or when an internal
manufacturing order is raised for a batch of identical parts, subassemblies or
product to replenish stocks
In general, the procedure are similar to job costing
On completion of the batch the cost per unit can be calculated by dividing the
total batch cost by the number of good units produced
Production
Production
requirements
Costs &amp; Costs
Job Order Costing
Each product is produced
according to job requirement i.e.
customer demand
Each product is unique
Costs measured for individual job
Batch Costing
Mass production
All units has same general
features
Costs measured for individual
4
Objects
unit (after calculating total cost
for the batch)
5
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