GRADE 12
COST ACCOUNTING
ACADEMIC WINDOW 2025-26
TERM 1
1
CBSE | DEPARTMENTOF SKILL EDUCATION
CURRICULUM FOR SESSION 2025-2026
COST ACCOUNTING (SUBJECT CODE 823)
Class XI & XII
COURSE OVERVIEW:
Cost Accounting today is a niche career for enthusiasts. For the beginners, it is the first step
towards understanding the approach to managerial accounting that involves the cost, budget
and profitability of numerous types of products, services and activities. Students should
discover the challenges and identify themselves with a career that provides them with
tremendous opportunities, both within the country and abroad.
Cost accounting is primarily used as a decision-making tool for individuals in charge of
business operations.
Managers use standardized methods to control cost in order to meet the desired level of
profitability. Students learn about pricing, budgeting, and performance analysis to determine
overall success based on predetermined objectives.
Courses in cost accounting may be offered alone or as part of undergraduate and graduate
programs in accounting, management or business administration. Cost Accounting students
would explore in these types of courses include





Cost management
Profit planning
Cost variance analysis
Budgeting and pricing
Managerial accounting systems
Job opportunities for Cost Accounting students are excellent in India and the growth
prospects are high as per the qualification of the learner. Once you complete a professional
course in Cost Accounting, you will immediately be offered a high position in industrial
units who earns the handsome package. Of course, your technical skills and basic
communication skills do matter in this job process respect to product receiving, movement,
storage and delivery.
OBJECTIVES OF THE COURSE:
Cost Accounting as a career is a wise option for those who are interested in growing fast in
their careers and those who wish to get exposure to industrial accounting at an early stage
itself. In this course, followings are the main objectives of this course.






Management of public & private sector enterprises
Financial institutions
All India Cost Accounts Service (ICAS)
Teaching
Consultancy
Independent practice
2
Students will be able to Collect, organize internal and financial information for evaluating,
critical analyses and regulating past and present financial performance for forecasting. They
will be Monitor costs of raw materials, labour, transportation, administrative costs, overheads
etc. in an industry. Students will learn to monitor performance and efficiency to locate and
report on problems and also learn to prepare regular cost reports.
SALIENT FEATURES:
Cost Accountants are also known as Management Accountants. They collect and analyses all
financial information for use by the management of the organization they work for. This
Vocational subject really helps the students to understand how to collect, organize, and
analyse internal and financial information for evaluating, critical analyses and regulating past
and present financial performance and for making projections for the future. The students will
be able to:











Monitor costs of raw materials, labour, transportation, administrative costs, overheads
etc. in an industry.
Analyse sales trends.
Audit to assess company's past performance for giving advice on product pricing.
Monitor performance and efficiency to locate and report various problems.
Advise ways to bring economy by analysing costs and implications of different
production methods.
Control the budget.
Prepare regular cost reports.
Help develop a competitive edge in products quality, customer service, brand image
etc. for maximization of profits.
May act as Cost accountant, Administrators, Appraisers, Secretarial Consultants, Tax
Consultants, Advisors in company matters etc.
Prepare feasibility studies of projects.
Salary packages of students getting placed abroad are really huge and provide
excellent scope for professional and personal growth.
3
Syllabus 2025-26
PRACTICAL GUIDELINES FOR CLASS XII
Assessment of performance:
The two internal examiners, assigned for the conduct and assessment
of Practical Examinations each in Secondary School Curriculum
(Under NSQF).
 Question for the viva examinations should be conducted by both
the examiners. Question to be more of General nature, project
work or the curriculum.
 Investigatory Project especially those that show considerable
amount of effort and originality, on the part of the student,
should get suitable high marks,
 while project of a routine or stereotyped nature should only
receive MEDIOCRE marks. Procedure for Record of Marks in
the Practical answer-books:
4
 The examiner will indicate separately marks of practical
examination on the title page of the answer-books under the
following heads: - Project -10 marks
 Projects for the final practical is given below
 Student may be assigned Viva based on Project -05 marks
 Practical File -15 Marks Students to make a PowerPoint
presentation/assignment / practical file/report.
 Instructors shall assign them any outlet to study the elements in
cost accounting. Suggested list of Practical –
 1. Take five different types of manufactured products and
classify the method of costing into job, process and batch.
 2. Take example of a function held at your school which
involved various participants from outside institutions. List out
the cost heads like refreshments, reading material, banners,
batches, traveling expenses, mementos etc. Classify the costs
into marginal and fixed. Indicate how these costs would change
if the no. of participants increases or decrease.
 3. You are assigned a commercial contract whereby you have to
purchase a computer, do some processing and print the reports.
Identify the various types of cost elements and indicate their
variability.
 4. Visit to a Restaurant and collect the information in order to
prepare a cost sheet.
 5. Visit to a Beauty Salon and collect the cost information about
any three services and prepare a cost sheet.
 6. Visit to a pharmaceutical manufacturing unit and collect the
information regarding cost incurred in a batch process.
 7. In a manufacturing product or process, identify the variable,
semi-variable and fixed costs. Draw the behaviour of these costs
for various levels of output.
 8. In a service unit, identify the variable, semi-variable and
fixed costs. Draw the behaviour of these costs for various levels
of activity.
 9. Visit to a contractor site. Collect the information about the
project under completion and identify various costs including
direct material cost, work in progress and fixed cost.
5
 10. Visit to a car/bike service station. Collect five job cards that
may include repairs, replacements, cleaning and washing etc.
Identify the various types of costs and classify them.
6
Unit 1 – Single /Output costing
Output Costing: Meaning, Features and Objectives
 Meaning of Output Costing
 Features of Output Costing
 Objectives
 Important Items Regarding Preparation of Statement of Cost and Cost Sheet
 Cost Collection or Cost Accumulation.
Types, Methods and Techniques of Costing
The general fundamental principles of ascertaining costs are the same in every system of
cost accounting, but the methods of analysis and presenting the costs vary from industry
to industry. Different methods are used because business enterprises vary in their nature
and in the type of products or services they produce or render. Basically, there are two
principal methods of costing, namely
(i) Job Costing, and (ii) Process costing.
1. Job costing: It refers to a system of costing in which costs are ascertained in terms of
specific jobs or orders which are not comparable with each other. Industries where this
method of costing is generally applied are Printing Process, Automobile Garages, Repair
Shops, Ship- building, House building, Engine and Machine construction, etc. Job
Costing includes the following methods of costing:
(a) Contract Costing: Although contract costing does not differ in principle from job
costing, it is convenient to treat contract cost accounts separately. The term is usually
applied to the costing method adopted where large scale contracts at different sites are
carried out, as in the case of building construction.
(b) Bach Costing: This method is also a type of job costing. A batch of similar products
is regarded as one job and the cost of this complete batch is ascertained. It is then used to
determine the unit cost of the articles produced. It should, however, be noted that the
articles produced should not lose their identity in manufacturing operations.
7
Terminal Costing: This method is also a type of job costing. This method emphasizes
the
essential nature of job costing, ie, the cost can be properly terminated at some point and
related to a particular job.
(d) Operation Costing: This method is adopted when it is desired to ascertain the cost of
carrying out an operation in a department, for example, welding. For large undertaking,
it is frequently necessary to ascertain the cost of various operations.
2. Process Costing: Where a product passes through distinct stages or processes, the
output of one process being the input of the subsequent process, it is frequently desired
to ascertain the cost of each stage or process of production. This is known as process
costing. This method is used where it is difficult to trace the item of prime cost to a
particular order because its identity is lost in volume of continuous production. Process
costing is generally adopted in textile industries, chemical industries, oil refineries, soap
manufacturing, paper manufacturing, tanneries, etc.
3. Unit or single or output or single output costing: This method is used where a single
article is produced or service is rendered by continuous manufacturing activity. The cost
of the whole production cycle is ascertained as a process or series of processes and the
cost per unit is arrived at by dividing the total cost by the number of units produced. The
unit of costing is chosen according to the nature of the product. Cost statements or cost
sheets are prepared under which various items of expenses are classified and the total
expenditure is divided by total quantity produced in order to arrive at unit cost of
production. This method is suitable in industries like brick-making, collieries, flour
mills,
cement
manufacturing,
etc.
this
method
is
useful
for
the
assembly department in a factory producing a mechanical article eg. Bicycle.
1. Meaning of Output Costing:
Unit or output costing is that method of costing in which cost are ascertained per unit of
a single product in a continuous manufacturing activity. Per unit cost is calculated by
dividing total production cost by number of units produced. This method is also known
as single costing. This method is known as ‘single costing’ as industries adopting this
method manufacture, in most cases, a single variety of product.
This method is also known as ‘unit costing’, as not only the cost of the total output, but
also the cost per unit of output is ascertained under this method. Under this method cost
units are identical. This method is also called ‘output costing’, as cost is ascertained for
the total output of a product.
8
Definitions:
1. According to J.R. Batliboi, “Unit costing or output costing may be defined as single or
output cost system is used in business where a standard product is turned out and it is
desired to find out the cost of a basic unit of production.”
2. According to Walter W. Bigg, “Unit Costing Method is a method of costing applied to
ascertain the cost per unit of production where standard and identical products are
manufactured.”
From above definitions it is clear that single costing is a method of costing under which
there is the costing of a single product which is produced by a continuous manufacturing
activity. Though under this method of costing a single variety of product is
manufactured, it may vary in respect of size, grade, colour, etc. The example of
industries which make use of this method of costing are – brick, sugar, cloth, coal,
cement, fisheries, food canning, quarries, plantation industries, etc.
2. Features of Output Costing:
Output costing has certain characteristics features.
The important features of output costing are:
(1) Output costing is the method of costing adopted in concerns where there is a
production of single product or a few grades of the same product differing only in size,
shape or quality by continuous process of manufacture. The units of production or output
are identical and the costs of units are physical and natural.
(2) Under this method, the cost per unit of output, say, per ton, per barrel, per kilogram,
per metre, per quintal, per bag, etc. is ascertained. The cost per unit of output is
ascertained by dividing the total cost incurred on a product during a given period of time
by output produced during the period.
9
Where the products manufactured are of different grades, first, the costs o f products are
ascertained grade-wise, and then the total cost of each grade of the product is divided by
the number of units of that grade so as to ascertain the cost per unit of each grade of the
product.
(3) Equality of cost is an important feature of this method. That is, under this method,
cost units, which are identical, will have identical cost.
(4) Under this method, the cost of product is ascertained at the end of the accounting
period.
(5) Under this method, the cost information relating to a product may be presented in the
form of either cost sheet or production account.
(6) This method is the simplest method of all the methods of costing; in the sense that
the cost collection and the cost ascertainment are quite simple.
(7) The cost per unit of output, determined under single. Costing enables the
management to make real comparison between different periods and between different
firms within the same industry, as the unit of output is a common factor between
different periods and between different firms within the same industry.
3. Objectives of Output Costing:
Output costing has the certain objectives.
They are:
(1) To ascertain the total cost of the output as well as the cost per unit of output.
(2) To ascertain the profit or loss on production.
10
(3) To analyse the expenditure by nature, classify them into element of cost and know
the extent to which each element of cost contributes to the total cost.
(4) To facilitate comparison of the cost of one period with the cost of another period to
know the efficiency or otherwise of the production.
(5) To facilitate the preparation of tender or quotation.
(6) To control the cost of the product through comparative study of the costs of any two
periods or through the comparison of the actual costs with the pre-determined standard
cost.
4. Important Items Regarding Preparation of Statement of Cost and Cost Sheet:
1. Normal Loss of Materials:
This type of loss is unavoidable and arises due to the nature of material. For example –
loss by evaporation of liquid materials, loss due to loading and unloading of materials,
etc. This loss is not deducted from the cost of material rather it is charged to the output
because it is a principle of costing that all normal expenses which are necessarily to be
incurred should be included in the cost of production.
Therefore, in order to absorb normal material losses in cost, the rates of usable materials
are inflated so that such losses are covered. In other words, such normal loss should be
ignored and this will get automatically charged to output.
2. Abnormal Loss of Materials:
Abnormal losses are those losses which arise due to abnormal reasons such as loss by
theft, loss by fire, careless handling etc. The cost of materials abnormally lost should be
deducted from the value of materials purchased so that output is charged only for the
materials used in production. Abnormal losses are charged to Costing Profit and Loss
Account.
3. Wages of Normal Idle Time:
Normal idle time is inherent in any work situation and cannot be reduced. The cost of
normal idle labour time is charged to the cost of production. Hence, wages of normal idle
time is not subtracted from the labour cost.
4. Wages of Abnormal Idle Time:
11
Abnormal idle time arises due to unanticipated causes such as strikes, lockouts, fire,
accidents, major machine break-down, earthquakes, etc. Loss of time due to such
abnormal causes cannot be planned. Such causes are sudden and non-frequent.
The cost of abnormal idle time is not included in cost of production. The wages paid for
abnormal idle time should be debited to Costing P/L A/c. Hence, wages of abnormal idle
time is subtracted from the labour cost.
5. Sale of Scrap, Defective, Salvage or Residue:
If clear information is given, then adjustment of these sales will be made accordingly.
But, if it is not clear that what the nature of scrap defective, etc., the sale value of scrap
etc. is deducted before computing factory cost.
6. Defective or Rejected Work:
Sometimes, under production process there might be defective goods. The production not
conforming to the standard set is known as defective. If such goods cannot be rectified,
then it may be sold in the market at lower rate. Whatever the amount is collected from
such sale is deducted from the factory cost. Similarly the defective units are also
deducted from the number of units produced.
On the other hand, the defective units which can be rectified by incurring extra expenses,
then such extra expenses incurred on such a rectification can be added i n factory
overhead as an extra factory overhead. After that the saleable units and their costs can be
determined.
7. Cash Discount and Trade Discount:
Cash discount is not considered as the part of cost of production, since it is of financial
nature. Whereas, trade discount is treated as sales promotion expense and is included in
selling and distribution expenses or may be deducted from gross sales.
8. Allocation of Joint Expenses:
In absence of clear-cut information factory overhead is allocated on the basis of wages
ratio and office and administration expenses and selling and distribution expenses on the
basis of works cost ratio.
9. Packing Charges:
Treatment of packing charges depends upon its nature. If, in absence of packing, goods
cannot be sold, then it should be treated as direct expense (i.e. packing of mustard oil
etc.). Packing charges in respect of partly finished goods are considered as factory
overhead. In the same way, packing expenses concerned with finished goods are
included in selling and distribution expenses.
5. Cost Collection or Cost Accumulation:
12
Usually the following procedure is adopted under output costing for the cost
accumulation of the various elements of cost:
1. Materials:
As materials both direct and indirect are issued to production against properly authorised
material requisitions. The direct and indirect material costs can be ascertained through
material requisitions.
Through the analysis of material requisitions, the quantities of direct and ind irect
materials issued to production can be ascertained, and on the basis of the prevalent
method of pricing material issues, the direct and indirect material costs can be
ascertained.
Accounting of Materials:
Materials are dealt in cost accounting as follows:
(i) The direct material costs are taken as a part of Prime Cost.
(ii) Indirect material costs are charged to Factory Overheads.
(iii) Normal loss of materials is adjusted by inflating the issue price of materials.
(iv) Abnormal loss of materials is not taken into account in the cost of production. It is
charged to the Costing Profit and Loss Account.
2. Labour:
The labour costs are collected periodically through pay rolls kept separately for each
section or type of work without the detailed job cards or chits required in job costing.
Treatment of Labour Cost in Cost Accounting:
Labour cost is dealt as follows:
(i) Direct labour costs are treated as a part of Prime Cost.
(ii) Indirect labour costs are charged to Factory Overheads.
3. Direct Expenses:
Direct expenses or chargeable expenses are separately collected from the financial record
where the actual direct expenses incurred are recorded.
The main expenses under this head are:
13
(i) Royalty
(ii) Architect and surveyor’s fees
(iii) Expenses of drawing and designs
(iv) Excise duty etc.
Treatment:
It is treated as a part of Prime Cost.
4. Overheads:
Where cost finding is undertaken at the end of long interval, i.e., at the end of the year,
after the overheads incurred are actually recorded in the financial book, the actual
overheads incurred during the year are collected from the financial records.
The actual overheads collected from the financial records are analysed into three
broad categories, viz.:
(1) Factory Overheads,
(2) Office and Administration Overheads, and
(3) Selling and Distribution Overheads and are treated as such for cost finding.
14
15
Question and answers :
Ans.
Cost per ton Rs.7.00; Prime Cost Rs. 91,500; Works Cost Rs. 1,08,400; Total Cost
Rs.1,20,400.
16
3. Prepare a cost sheet from the following data to find out profit .
(Amt. In Rs .)
a) Opening Stock of R.M –
5000
b) Opening Stock of F.G –
4000
c) Closing Stock of R.M –
4000
d) Closing Stock of F.G –
5000
e) Raw materials purchased – 50000
f) Wages paid to labourers – 20000
g) Chargeable expenses –
7000
h) Rent, rates and taxes –
5000
i) Power –
6000
j) Factory heating & lighting – 5000
k) Factory insurance –
8000
l) General expenses –
3000
m) Office salaries –
20000
n) Office printing & stationery – 5000
o) Salaries of salesman –
12000
p) commission of travel agents – 4000
q) Sales 200000.
4. Prepare a cost sheet from the following data to find out profit and cost per unit
( Amt. In Rs.)
a) Raw materials consumed 160000
b) Direct Wages 80000
c) Factory O/H –
16000
d) Office overheads -10% of Factory cost
e) Selling O/H –
120000
f) Units produced –
4000
g) Units sold –
3600
h) Selling price –
Rs.100 per unit.
4) Prepare a cost sheet from the following data to find out cost of production and cost
per unit of goods manufactured by a company.
( Amt. In Rs.)
a) Op. stock of R.M –
3000
b) Raw materials purchased – 28000
17
c) Cl. Stock of R.M –
4500
d) Manufacturing wages –
7000
e) Depreciation On plant
1500
f) Loss on sale of part of plant – 300
g) Factory rent & rates –
3000
h) Office rent –
500
i) General expenses –
400
j) Discount on sales –
3000
k) Advt. Expenses –
5500
l) Income tax paid –
2000
Number of units produced during the month was 3000. Op. Stock of finished goods
was 200 valued at Rs.2800. Cl. stock of F.G. was 400 units.
5) what do you mean by output costing?
6) Name the Industries that make use of output costing?
7) What do you mean by Prime cost and Factory cost?
8) What do you understand by the term called “Cost of Production”?
9) How do you adjust stock of finished goods?
10) What is work in progress?
11) What are selling and distribution overheads?
12) State some examples of office and administration overheads.
13) Briefly explain the term “Cost sheet” along with its basic Proforma? How does it
help in determining the cost of sales? Also, explain its major types?
14) What do you mean by production account or statement? How it is different from
cost sheet? Also, show the various elements that form part of the production account.
15) what are the advantages of cost sheet.
Unit 2 Job or Batch costing
Job costing and batch costing are two distinct methods of cost calculation used in different
production environments. Job costing involves assigning costs to a specific job, project, or
18
batch of products, enabling companies to track expenses and revenues associated with each
project. In contrast, batch costing accumulates costs for a group of identical products,
simplifying the tracking of production costs associated with producing multiple units. The
key differences between the two methods lie in their approach to cost calculation, production
volume, and accounting systems. Understanding these differences is essential for businesses
to choose the most suitable method for their operational needs and goals.
What Is Job Costing
It means ascertaining costs of an individual job, work order or project separately. According
to ICMA London, “job costing is that form of specific order costing which applies where
work is undertaken to customer’s specific requirements and each order is of comparatively of
short duration.” Under this method of costing, each job is considered to be a distinct cost unit.
As such, each job is separately identifiable. In the case of a job, work is usually carried out
within the factory or workshop. Sometimes, a job is accomplished even in the customer’s
premises. This method of costing is applicable to ship building, printing, engineering,
machine tools, readymade garments, shoes, hats, furniture, musical instruments, interior
decorations etc.
Features:
19
1. Each job has its own characteristics, depending up on the special order placed by the
customer.
2. Each job is treated as a cost unit.
3. A separate job cost sheet is made out for each job on the basis of distinguishing numbers.
4. A separate work in progress ledger is maintained for each job.
5. The duration of the job is normally a short period.
6. Profit or loss is determined for each job independently of others
Objectives of Job Costing:
The main objectives are of job costing are:
(1) The main objective of job costing is to ascertain the cost as well as the profit or loss
on each job.
(2) Another objective of job costing is to find out those jobs which are more profitable
and those which are not profitable or less profitable.
(3) Control of costs, by comparing actual costs with estimated costs, is also one of the
objectives of job costing.
(4) Job costing is also intended to indicate, through the comparison of actual cost of a
job with its estimated cost, whether the estimation is incorrect or the actual cost is
excessive.
(5) Another objective of job costing is to provide a basis for estimating or determining
the cost of similar jobs undertaken in future.
20
Advantages of Job costing:
1. It helps to distinguish profitable jobs from unprofitable jobs
2. It helps to identify defective work and spoilage with a department or person
3. Selling price of special orders can easily be fixed.
4. It helps to prepare estimates of cost for submitting quotations and tender for similar
jobs
5. It helps to control future cost.
Disadvantages of Job Costing:
Job costing is not free from defects. It suffers from certain limitations.
They are:
(1) It involves more clerical work for cost collection. Further, it involves m ore
supervision. These add to cost and make it costly.
(2) Under this method of costing, costs are required to be collected for a large number of
small jobs. So the chances of errors in cost collection are more in job costing.
(3) Job costing, being historical in nature, cannot be of much help for cost control unless
it is combined with estimated or standard costing.
Requisites of Job costing system:
1. A sound system of production control
2. An effective time booking system
3. Clearly defined cost centre
21
4. Appropriate overhead absorption rate, and
5. Proper material issue pricing method.
Procedure for Job order costing system:
The Procedure for job order costing system may be summarized as follows: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.
The procedure that is commonly applicable to a normal sale transaction equally applies
in case of job costing.
This is explained under the following steps:
1. Receiving an Enquiry:
Before placing an order with the manufacturer, usually the customer will enquire about
the price, quality to be maintained, the duration within which the order is to be executed
and other specifications of the job.
2. Estimation of the Price of the Job:
The cost accountant estimate the cost of job after considering the various elements of
cost and keeping in mind the specification of customer. This is based on the cost of
execution of similar job in the previous year and considering the possible changes in the
various elements of the cost. The estimated cost of the job is then informed to the
prospective customer.
3. Receiving of Order:
The customer will then place the order if he is satisfied with the quotation price and
other terms of executing the job. The production control department receives the order
and it will give a number for every order thus received which is known as job order
number. The job is known by this number until it is completed.
4. Preparation of Production Order:
A production order is prepared by the production control department is sent to the
concerned persons such as the employees to enable them to carry out the job, to the
store-keeper to facilitate him to stock all the required materials, to cost accountant to
enable him to prepare job cost sheet in order to ascertain the profit on every job
completed.
22
The production order consists of the following particulars:
(i) Date on which the order is prepared,
(ii) Job order number,
(iii) Description of the goods to be produced,
(iv) Number of goods to be produced,
(v) Date of starting the work,
(vi) Date of completing the work,
(vii) Listing of materials to be used,
(viii) Sequence of production process,
(ix) Signature of production manager, etc.
5. Preparation of Design:
When the job to be executed requires special treatment, a design to meet the customer’s
specifications is prepared by the production planning department. This is done by the
engineering department with consultation with the production planning department.
6. Execution of Job and its Inspection:
The job will be started as per the schedule of production. Necessary materials,
employees, tools, etc. are used to complete the production. The production process is
supervised by the production manager or supervisor from time to time to ensure that the
job executed is in accordance with customer’s specification and that it is completed as
per the production schedule.
7. Despatch of Goods:
The finished product are then packed and delivered to the customer as per the delivery
schedule. Payment is settled as per the agreed mode of payment.
6. Accounting System under Job Costing:
There are four elements of cost (i.e. material, labour, chargeable expenses and
overheads) which are also applicable to job costing.
They are discussed as under:
1. Materials Cost:
23
Materials are classified into direct and indirect materials on the basis of traceability of
materials to the job. Those materials which are traceable to the job are treated as prime
cost element and those not traceable to the job are treated as manufacturing overhead.
2. Direct Labour Cost:
The direct labour cost is debited to the job on which work is directly performed. Clock
card is used to record the hours worked by each employee. At the end of each week, the
payroll department uses the information on the clock card to calculate each employee’s
pay. The clock card only records the total time worked by each employee.
It is used by the employee to indicate how much time he worked in a period and by the
employer to determine how much to pay the employee for that work. A clock card does
not record the time spent by each employee on the jobs. This information is recorded by
the employees on a time ticket. A time ticket shows the date on which the work was
completed, the employee’s name, name of the department, the time of starting and
finishing the work.
If the work is performed directly on a job, the employee would record the job number,
indicating the labour as direct labour. The cost accounting department collects all the
labour time tickets, records the pay rate of the employee on the ticket and calculate the
labour cost of the operation.
3. Direct Expenses:
The direct expenses under job order industries usually include cost of designs, moulds,
hiring of special tools and equipment and maintenance cost of such tools.
4. Factory Overheads:
In most cases pre-determined overhead rates are used for the absorption of factory
overheads. The pre-determined overhead rate is calculated at the beginning of the year
by estimating the total overhead cost for the year and then dividing either by direct
labour cost or direct labour hours. Throughout the year the overhead rate is applied to
calculate the overheads and thus charged to job.
7. Preparation of Job Cost Sheet:
Under job costing, a job cost sheet is prepared for every job. It presents the cost data
relating to a job. It states the various elements of cost, such as, direct material, direct
labour, direct expenses and overheads under the various division of cost like prime cost,
works cost, cost of production and total cost. It also states the sale price and profit or
loss made on a job.
24
WIP Control Account
A control account that a manufacturing company uses to present totals of similar items
related to cost of production (direct and indirect expenses). It is debited with the total cost of
production, which includes direct materials, direct work expenses, direct expenses,
production overhead recovered, whereas it is credited with the amount of finished goods
completed and transferred.
Work-in-progress (WIP) control account presents the total amount of work-in-progress (WIP)
at any time. The balance of this account reflects the total balance of jobs (production works),
which are in progress as per individual jobs accounts (in a subsidiary ledger).
This account is impacted by certain sources of entries including goods received notes,
materials requisitions notes transfer notes, bill of materials, wages abstracts, etc.
Batch costing
25
Batch costing means accounting and calculating costs in respect of each batch instead of
accounting it for each and every unit. Batch means a number of things or people which
belong together as a group. An example of batch refers to a group of students being taught
together in schools, colleges and educational institutions at a time. It may also refer to
hundreds or thousands of products manufactured together at one time.
The purpose of doing so is to reduce time, money and energy and pass on these savings to
the ultimate customer. Ever imagined if you were the only student to be taught in the entire
class your fees would be so high that education itself would be a daydream for most of us?
Thus, teaching was conducted for a number of students together called a class or grades. The
same is the case with manufacturing companies when it comes to production.
Batch costing is a type of specific order costing where articles are manufactured in
predetermined lots known as batches. Here each batch is treated as a separate cost unit and
costs are accumulated and ascertained for each batch. A batch consists of a number of units
which are processed simultaneously. The cost of each component in the batch is determined
by dividing the total cost by the number of articles produced.
Applications of Batch Costing
Batch Costing is applied in those industries where similar articles are produced in definite
batches for internal consumption in the production of finished products or for sale to
customers generally. It is generally applied in –
Features of Batch Costing
26
 Batch costing is applied where identical units are produced.
 All costs are accumulated and ascertained for each batch.
 Products lose their individuality as they are manufactured in continuous flow.
 Products lose their individuality as they are manufactured in continuous flow.
 Batch costing is used to calculate the total cost of each batch. Here all raw materials are
supplied on a batch basis and other expenses are also paid on the basis of each batch.
 A separate batch cost sheet is used for each batch and is assigned a certain number through
which the batch can be identified.
On completion of production the cost per batch is determined as follows: Cost Per Unit =
Total Batch Cost  Total Units in Batch
Process of batch costing
Determination of Economic Batch Quantity
As we know, each batch contains multiple units. Therefore, deciding optimum quantity in
each batch is a very important decision to minimize the cost of production.
Inventory control principle of calculating the Economic Order Quantity (EOQ) will be used
to compute Economic Batch Quantity (EBQ). Formulae for calculating the same is as
follows: Economic Batch Quantity =
U = Annual Demand
P = Setting up and order placing costs (per batch)
S = Storage or inventory carrying over cost per unit per annum
27
EBQ is important for the following reasons:
1. Cost Reduction: The primary objective of EBQ is to minimize the total cost of inventory.
By ordering the optimum quantity of items, a business can reduce the cost of ordering and
holding inventory.
2. Efficient Use of Resources: By ordering the right amount of inventory, a business can
ensure that its resources are being used efficiently. This can help to reduce waste and increase
productivity.
3. Improved Customer Service: By maintaining the right level of inventory, a business can
ensure that it always has the products its customers want. This can help to improve customer
satisfaction and loyalty.
Factors Influencing Economic Batch Quantity:
The following factors can influence the EBQ:
1. Demand for the Product: Higher demand for the product means that a larger quantity
should be ordered to meet the demand.
2. Setup Cost: Higher setup cost means that a smaller quantity should be ordered to reduce
the cost of ordering.
3. Holding Cost: Higher holding cost means that a smaller quantity should be ordered to
reduce the cost of holding inventory.
4. Lead Time: Longer lead time means that a larger quantity should be ordered to ensure that
the business does not run out of inventory.
5. Availability of Storage Space: Limited storage space means that a smaller quantity should
be ordered to ensure that the inventory can be stored properly.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Key points : In this unit, you have already learnt the following:
 Job costing is a costing method used to determine the cost of specific jobs, which are
performed according to the customer’s specifications
 Job costing is applicable in industries such as printing press, automobile garages, repair
workshops, shipbuilding, foundry, and other similar manufacturing units, which manufacture
according to customer’s specific requirements.
28
 Batch costing means accounting and calculating costs with respect to each batch instead of
accounting it for each and every unit. Batch means a number of things or people which
belong together as a group.
 Batch costing is generally applicable in readymade garments manufacturing industries,
pharmaceutical/drug industries, spare parts and components manufacturing industries, toys
manufacturing industries, and tyres and tubes manufacturing industries.
 Economic batch Quantity (EBQ) refers to the optimum batch size that the company should
manufacture so that the set-up cost and the carrying costs in relation to finished goods are
optimum(minimum).
Questions
You are required to calculate job cost sheet for the No.100.
2. The data pertaining to Heavy Engineering Ltd. are as follows at the end of 31.3.2022.
Direct material ₹ 9,00,000; Direct wages ₹ 7,50,000; Selling and Distribution overheads ₹
5,25,000; Administration overheads ₹ 4,20,000; Factory overheads ₹ 4,50,000 and Profit ₹
6,09,000. Prepare a Cost Sheet showing all the details.
For 2021-22, the factory has received a work order. It is estimated that the direct materials
would be ₹ 12,00,000 and direct labour cost ₹ 7,50,000. What would be the price of a work
order if the factory intends to earn the same rate of profit on sales, assuming that the selling
and distribution overheads have gone up by 15%? The factory recovers factory overheads as
a percentage of direct wages, administrative and selling and distribution overheads as a
percentage of work cost, based on the cost rates prevalent in the previous year.
3. From the following information, calculate the Economic Batch Quantity for a company
using batch costing: Annual Demand for the components 2400 units Setting up the cost per
batch ₹100 Manufacturing cost per unit ₹200 Carrying cost per unit 6% p.a.
4. ABC Ltd. is committed to supplying 24,000 bearings per annum to BC Ltd. On a steady
basis. The projected monthly cost of inventory keeping for each bearing is 10 paise, and the
setup cost for each run of bearing production is ₹324,
29
a) What would be the optimum run size for bearing manufacture? b) What is the minimum
inventory holding cost at optimum run size? c) How much more money would the firm spend
compared to the ideal run stated in (a) if the company had a strategy of producing 6000
bearings every run?
5. After getting job identity number, explain next three steps to be followed in job costing
procedure? (2024-25 Sample paper)
6.Explain batch costing in brief. What kind of articles is it applicable for? (2023-24)
7.After getting job identity number, explain next three steps to be followed in job costing
procedure? (2023-24 sample paper)
8.Write the difference between process costing and job costing based on ‘cost unit’ and
‘nature. (2022-23 and 2021-22)
9.A pharmaceutical company is having annual demand of its medicine 40,000 units. To
produce units, company has to bear setting up and order processing cost of RS 100. Cost of
manufacturing one unit is RS 8000. Cost of carrying is 10% per annum. Calculate Economic
Batch Quantity. (2020-21 sample paper)
10.A pharmaceutical company is having annual demand of its medicine 9,000 units. To
produce units, company has to bear setting up and order processing cost of RS 220. Cost of
manufacturing one unit is RS 1,250. Cost of carrying is 10% per annum. (2019-20 SQP)
11.What is meant by the term “Batch Costing”? Name any two industries where Batch
costing is used. (2019-20 SQP)
12.State any three objectives of Job costing. (2019-20 SQP)
13.Explain briefly ‘Batch Costing’. (2019-20)
14. State any three advantages of Job costing. (2019-20)
Assignment: visit a nearby agri farm, collect cost data for a particular crop production and
prepare a Job Cost Sheet.
30
31