COURSE: ACC 222
LECTURER: DR. ADETULA, DORCAS
TOPIC: COSTING METHODS:
JOB /BATCH COSTING
OBJECTIVES:
At the end of this lecture, students should be able to
•Define a Costing Method
•Classify Costing Methods
•Define a Job Costing
•List the Procedure for the Performance of jobs
•Draw the format of a Job Cost Sheet or Job Card
•Prepare a Job Cost Sheet
COSTING METHODS
It is a method of costing which is aimed to match the way goods
are processed or manufactured or the way services are rendered.
It can also be described as the means of ascertaining or
accumulating the cost of any item produced or service rendered. It
is a method of cost ascertainment that centers on the nature of
business.
It is the form of production process in any business that
determines the costing method that will be appropriate for the
organization.
Organizations produce their goods and services in
different ways.
For examples, the stages of production of products in a
pharmaceutical company,
textile, a brewery, a
construction company differ very greatly from one
another.
It means that the costing method that is relevant in a
pharmaceutical company may not be applicable in a
construction company.
CLASSIFICATION OF COSTING METHODS
Costing methods can be classified into two broad
categories as follows:
1.
2.
Specific Order Costing Method and
Continuous Operation/Process Costing Method
The above are examined in turn.
1. Specific Order Costing Method
This costing method is used by organizations that have
the end products that are not similar.
For example, a construction company has end products
such as building, overhead bridge, road, etc. that are
completely not comparable.
Therefore, this method is used under these situations:
a. A single order/contract or distinct orders
contracts are involved;
b. The cost of production of the cost units are
readily identifiable;
c. A customer makes an order for a particular
product specification;
d. The job/contract is performed in
accordance with the customer’s
specification.
Each of the costing methods has sub-divisions
to take care of minor differences existing
between various organizations.
Sub-Divisions of Specific Order Costing
a. Job Costing
b. Contract Costing
c. Batch Costing
2. Continuous Operation/Process Costing
Method
This is used in an organization, if at the end of
the manufacturing process the end products
are similar.
Examples of such organizations include oil
refining, soap making and dairy companies.
Therefore, this method is applicable under
these circumstances:
a. The product or service follows a series of
sequential, frequently automatic processes,
that is operation is continuous or repetitive
in nature, involving a number of stages;
b. The unit of output or services are identical
and
c. Cost of output or services is directly
traceable.
Sub-Divisions of Continuous Operation/Process
Costing Method are as follows
1. Process Costing and
2. Service/Function Costing
It must be noted that batch costing may have
some of the characteristics of both specific
order and process costing. The diagram below
buttresses the above explanations.
COSTING METHODS
Continuous Operation Costing
Job or Specific Order Costing
Job Costing
Contract Costing
Process Costing
Service/function
Costing
Batch Costing
JOB COSTING
It is a form of specific order costing used for specific
clients. It is done by accumulating or ascertaining cost
in respect of a job.
A job is a cost unit which consists of a single order or
contract. Such jobs or orders can be recognized from
the beginning to completion.
Job Costing is useful in establishing the profit or loss
on each completed job and in providing a valuation of
work-in-progress.
JOB COST SHEET
Customer:
Address:
Job Description:
Quoted Price:
Balance b/f
Material used
Material Returned
Labour
Apportioned
Overheads
Job No:
Start Date:
Delivery Date:
Dispatch Note No:
Material
Labour
Overhead
x
x
(x)
x
x
xxx
xxx
xxx
SUMMARY
Material
Labour
Overhead
Production Cost
Selling /Distribution
Total
Invoice Price
Job Profit/Loss
N
x
x
x
xxx
x
xxx
x
xxx
ILLUSTRATION 1
Decent Engineering Ltd. has Departments A, B & C. The overhead costs
over year were apportioned by means of blanket rate at N0.5 per direct
labour hours for the three departments. However, the overhead costs for
selling and distribution costs were calculated as 15% of the production
cost.
The company has just got a contract job JBA40 and the following estimates
have been made:
Direct Materials:
Mat. K9 300 units at N6, Mt. Z6 400 units at N10, Mat. Y8 450 units at N8.
Direct Labour Wages:
Department A: 185 hours at N8 per hour
Department B: 250 hours at N8 per hour
Department C: 240 hours at N12 per hour
The contract price is N20,000.00.
Required, prepare a job cost sheet.
Solution
Decent Engineering Ltd
JOB COST SHEET
Customer:
Address:
Job Description:
Quoted Price: N20,000.00
Job No: JBA40
Start Date:
Delivery Date:
Dispatch Note No:
Material
N
Direct Materials:
Mat. K9 300 units @ N6/unit
Mat. Z6 400 units @ N10/unit
Mat. Y8 450 units @ N8/unit
Labour
N
Overhead
N
1,800.00
4,000.00
3,600.00
Direct Labour:
Dept. A: 185 hrs @ N8/hr
Dept. B: 250 hrs @ N8/hr
Dept. C: 240 hrs @ N12/hr
1,480.00
2,000.00
2,880.00
Apportioned
Overheads (185 + 250 + 240) *
N.50
Selling/Distribution
15%*(9400 + 6360 + 337.50)
337.50
2,414.63
Total
6,360.00
9,400.00
2,752.13
SUMMARY
Material
Labour
Overhead
Factory Cost
Selling & Admin Overheads
Total Cost
Invoice Price
Job Loss
N
9,400.00
6,360.00
337.50
16,097.50
2,414.63
18,512.13
20,000.00
1,487.87
Working
Product Cost
Materials
Labour
Overhead
N
9400.00
6,360.00
337.50
16,097.50
15% of product cost
=16,097.50*15%=2,414.63
Illustration2
Damy Enterprise was contracted to produce
1,000 cups for Ore Ltd. The job which was given
job No5 started on 27th December, 2010. As at
the end of 2010, the following costs had already
been charged to the job by Damy:
Direct materials
N2,000
Direct labour
N500
Production overhead N750
In January 2011, the Damy completed the job after incurring the
following additional costs:
2 January: Material Requisition MR100: 180 units at 10 per unit
3-6 January: Labour time Ticket No30: 26 Hrs at N10 per hour
9 January: Material Requisition MR110: 40 units at N30 per unit
10-14 January: Labour Time Ticket No 40: 30Hrs at N8 per Hour.
It is the policy of Damy to absorb 150% of direct labour cost as
production overhead.
Required:
Prepare a job cost sheet for year 2011;
assuming there was no other job in progress at
the end of year 2010, how much should Damy
Enterprise show in its book as work in progress
at the end of year 2010.
Recommended Text Books
1) Lucey T.(2001). Costing, The Tower Building, 11
York Road London SEI7nx 370 Lexington Avenue,
New York
2) Omolehinwa E.O.(1997). Coping with Cost
Accounting, Pumark Nigeria Ltd, Ikeja
3) Okoye A.E(2001) Cost Accounting: Management
Operational Applictions, United City Press Benin,
Nigeria
4) Adedeji B. and Kajola S. costing Accounting,
Concept, Analysis and Use for Decision Making,
Lucky Odoni Nig. Enterprises, Nigeria