JOB & BATCH
COSTING
Encyclopaedia of Accounting
JOB AND BATCH COSTING
Job Costing
Job costing is the calculation of the actual cost of production of a product, where
work is undertaken to specific customer requirements and each order is of
comparatively short duration. A Job is a cost unit which consists of a single order
or contract.
The administration of an order in a job costing environment typically follows this
sequence:
1.
2.
3.
4.
5.
6.
7.
8.
Estimate requested by customer
Total cost calculated using a Job Cost Sheet
Profit is added to total cost
Customer accepts the estimate
Actual costs are recorded on a job sheet
The job is completed & despatched to customer
Any variance between estimate & actual cost is analysed
Action is taken to overcome variances
The total cost includes:





Direct Material Cost
Direct Labour Cost
Direct Expenses
Production Overheads
Administration, selling & distribution overheads
In calculating the total actual cost, production overheads are:
Actual labour hours x Overhead absorption rate (actual or predetermined)
© Copyright 2012 Meadowgate Training Ltd
Example
Shopfronts Ltd prepare signage for retail outlets.
Job No. 123, is based on the following cost
estimates
The backing board will cost £82
Standard lettering will cost £55
Templates will cost £25
Direct labour will be 5 hours printing at £12/hour and 2 hours finishing at
£9/hour
Overheads at charged at £20 per labour hour
The business requires a profit of 40% of cost price
The Job Cost Sheet will appear as follows:
Job No. 123
£
Direct Materials
Backing board
Standard lettering
Templates
82.00
55.00
25.00
Direct Labour
Printing: 5 hrs @ £12/hr
Finishing: 2 hrs @ £9/hr
60.00
18.00
Overheads
7 hrs @ £20/hr
140.00
Total Cost
380.00
Profit (40% of cost price) 152.00
Selling Price
532.00
© Copyright 2012 Meadowgate Training Ltd
Batch Costing
Batch costing is very similar to job costing.
A batch is a group of similar articles which is treated as a single job during
production. The cost per unit then calculated as the total batch cost divided by the
number of units in the batch
Service Industries
Similar approaches to job and batch costing are used in service industries. They
are sometimes known as service costing techniques.
Services differ from goods in being:
 Intangible
 Simultaneously produced and consumed (eg. a concert)
 Perishable
 Heterogeneous (each customer is different)
A challenge in service costing is often to establish a suitable cost unit. For
example, bus companies calculate a cost per passenger kilometre; colleges
calculate a cost per full-time student.
© Copyright 2012 Meadowgate Training Ltd