Job Casting 135

tohapter

JOB COSTING

Learning Objectives
After studying this chapter, you should he able to understand:
Concept of Job Costing
Procedure in Job Costing
Merits and Demerits of Job Costing

Synopsis
1. Introduction
2. Applicability of Job Costing
3. Features of job Costing
4. Procedure involved in Costing
4.1 Production Order
4.2 Material Costs
4.3 Labour Costs
4.4 Manufacturing and Other Overheads
4.5 Completion of Johs
5. Job Costing Evaluated
5.1 Advantages
5.2 Limitations
6. Batch Costing
7. Exercises
7.1 Objective Questions
7.2 Practical Problems
 36 SP'SS Cost Accounting -I (F.Y.B.C.A.F) (Sem-)
1. INTRODUCTION
Job Order costing is also known as Specific Order Costing or Production-order costing or Job-
lot costing. According to ICMA London, it is that category of basic costing method which is
applicable where the work consists of separate, Contract jobs or batches each of which is
authorised by specific order or contract. Job costing is followed by manufacturing and non-
manufacturing concerns. It is employed in industries in which:
a) production is done on the basis of customer's own specifications;
b) products are manufactured in distinguishable lots;
c)products are not uniform; and
d) it is practical to maintain a separate record of each lot from the time production is begun
until it is completed.
2. APPLICABILITY OF JOB CoSTING
Job Costing is applicable to concerns engaged in job-order production or services. It is
employed by jobbing concerns. Following is the list of concerns which usually employ Job Costing
method
a) Job printing.
b) Manutfacturers of special types of equipments,
Design engineering concerms,
d) Repair works,
e) Engineering concerns,
D Construction companies,
8) Ship building companies,
h) Furniture makers,
i) Hardware industry.
) Machine manufacturing industry.
k) Automobile garages and
D Interior decoration.
FEATURES OF JOB CoSTING
a) Work is performed in accordance with customer's orders and specifications.
b) Products are not produced for maintaining stock.
Every job can be identified clearly.
d) Every job is charged with its own cost.
e) Work in progress depends upon the number of jobs in hand at the end of the period.
D Each job is a separate accounting unit and separate job or production numbers are
allotted to each job.
B) A separate production card is maintained for recording the costs incurred on each job or
each lot of production.
h) Under this method, the cost incurredin respect of materials, labour, overheads, etc. for
each job or lot of production is ascertained separately.
) The purpose of job order costing is to segregate the cost of each product or lot or job.
D A job or an order may extend over several accounting peiods and therefore, the costs
may not be related to any particular accounting period.
k Job work is done in the factory premises.
. 1. What are the features of Job Costing?

4. PROCEDURE INVOLVED IN COSTING

Job costing demands careful planning and control so as to avoid wastage in the use of
materials, machinery and other resources. The procedure of costing involves the following steps:
4.1 Production Order
On receipt of an order from the customer or on receipt of communication from the sales
department for manufacturing a certain product, the production planning department prepares a
Suitable design of the product or job as per the specifications. The production planning department
prepares a list of operations which indicates the sequence of operations and the machines or
departments to whom the job is entrusted. The department also prepares an estimate of materials
required for the product.
Job Costing sP'ST' 137

A production order is issued to the shop instructing to proceed with the job. The production
order is known as "Work Order" or "Job Order Record". It constitutes the authority for work.
Production order is the key point from where production starts and the cost of a job is worked out.
A production order contains all the information that is relevant to the job or products or service. It
gives information about the follaowing
a) particulars of the job, product or service;
b) quantity to be produced;
c)date of starting the job;
d) required date of completion of the job;
e) particulars of materials required; and
) particulars of various operations involved in the performance and execution of the job.
Production Orders are usually of two types
i) Assembly Type Order: This is applicable where components are purchased and
assembled.
ii) Components Production Type: In this case, separate production orders for each
component, sub-assembly and final assembly are issued.
Each and every production order is assigned a number called the "Job Number" or "Job Order
Number" or "Production Order Number" or "Work Order Number".
Copies of Production order are sent to
) t h e stores tor issue of materials;
) the departments concerned to undertake production: and
ii) the Cost Department for determining the cost of the job.
On receipt of the job order, the cost department prepares a job cost sheet or card which bears
the production order number. For each job, a separate job cost sheet is prepared in order to
ascertain costs and the profit or loss on each job.

XYZ Ltd.

Serial No, Description No.

Production Order No. & Date:
Customer's Reference No.
Date Started
Particulars of Job
Quantity on Order :
Probable Date of Completion

Department (s) Operations Schedule No,

Bill of Materials No. Tools List No. :
Special Instructions
Materials

Particulars Code No. Quantity Particulars Code No. Quantity

Labour

Ordered By
Checked By
APproved By

Fig 6.1
4.2 Material Costs
On receipt of a production order, the shop draws materials from the stores on material
requisitions. The number of the job order for which material is drawn is put on the material
requisitions. The costs of these materials are recorded in the job order card. Any indirect materials
required can also be drawn on the strength of material requisitions and their costs are recorded in
job order card. Generally, the cost of materials issued is ascertained through a "material issue
analysis sheet".
 38 SP'SS Cost Accounting-1 (F.Y.B.C.A.F) (SemD

XYZ Ltd.
Bill of Material
ob No. No.
Date of IsSue Date
Department
Production Order No.
Ttem No. Description Code For Departmental Use Remarks
Requisition No. Date Initials
Prepared By
Checked By

Fig 6.2
43 Labour Costs
On the basis of time sheets or piece-work cards, the labour costs are ascertained and classified
into direct and indirect wages. They are subsequently analysed in "wage analysis sheet and
included in job order card.
4.4 Manufacturing and Other Overheads
Overheads may be predetemined or actual. They are worked out for each cost centre.
Overheads cost of each job is summarised in an Overhead Absorption Analysis Sheet and there
from overheads relating to the job are analysed and entered in the job cost sheet as tactory
overheads, admini-stration overheads and selling and distribution overheads. Generally the
overheads are added at predetermined rates to Material and Labour Cost.
4.5 Completion of Jobs
On completion of the job, a job completion report is sent by the shop to Production Planning
Department and a copy of the same to Cost Department. The completion report indicates that the
jobs are completed and the cost sheet may be closed. The various elements of costs are totalled and
the total cost is divided by the number of jobs executed or units manutactured to determine the cost
per job or unit.
Subsequentdy, the quantity recorded in the finished stock card is totalled and total number of
units completed is posted to the Job Completion Report or Production Order.

XYZ Ltd.
Job Cost Sheet
Job/Production Order No.
Particulars
Customer
Quantity
Date Commenced Date Completed
Materials Labour Overheads

Total
Summay
Estimated Cost ActualCostR|Difference
Direct Materials
Direct Labour
Direct Expenses
Overhead

Total
Fig. 6.3
Q2. Explain the procedure involved in job costing
5. JOB CoSTING EVALUATED
Job Costing ' 139
5.1 Advantages
i) Job costing enables the management to identify spoiled and defective work in respect to
particular production orders, departments or groups of workers and hence the
management can fix up responsibility for ineificiency.
ii) Management can determine the trends in costs and compare the operating efficiency of
men and machines in each cost centre. It can also determine the completion cost of each
job,
ii) It enables the preparation of estimates of costs of jobs before production.
iv) It enables comparison of estimated costs with actual costs as the costs are analysed on the
basis of costs, services and production.
v)Itmakes available to the management a complete file of production orders which
contains valuable statistics on cost.
vi) It enables ascertainment of profit or loss on each job immediately after their completion.
vi) It enables the management to identify unprofitable jobs.
vii) In case of cost plus contracts, job costing enables to provide precise quotations.

ix)It helps in production planning.

) I t facilitates fixation of selling price.
Q.3. What are the advantage of Job Costing?
5.2 Limitations
i)Job costing involves a lot of clerical work in identifying materials, labour and overheads
with specific jobs and departments.
i) Management cannot evaluate precisely the operating etficiency of men and machines.
iin) Since costs ascertained and compiled are historical costs, they are not of much utility to
the management.
iV)It does not apply budgetary control to important cost elements such as labour, materials
and overheads.
v)Job costs over any period of time cannot be compared if major economic changes take
place in between.
vi) It is expensive to operate and erors are possible due to increased clerical work.
Q.4. Explain the limitations of Job Costing.
Process of accumulation of Cost in Job Costing

Direct Material
cquisilion

Direct
Labour Sheets

Distribution
c d s

Difect

Rccovery of
werticads [Link]

Fig 6.4

Q.5. Explain the process of accumulation of Cost of Job Costing

 40 Cost Accounting -1 (F.Y.B.C.A.F) (Sem-)

Illustration: I
Thefollowing figures relates to three Jobs of manufacturingbuiSness unit:
Particulars JoD I Job 2 Job 3

600 800
1,000
Direct Materials
Direct Labour 400 600 700
Direct E x p e n s e s 60 100

Works overhead is recovered at 50% on Prime Cost and Office Overhead is recovered at 10% on work
cost.
Find out the total cost of each job.
Solution
StatementShowing Total Cost for Job No. 1, 2 and 3
Particulars Job 1
JoD Job

Direct Materials 600 800 1,000

(+) Direct Labour 400 600 7O0

(+) Direct Expenses 00 100

Prime Cost I,060 1,480 1,800
Add: Factory Overheads :
50% on Prime Cost 530 900
Work Cost 1,590 2,220 2,700
Add: Office Overheads
10% on Work Cost 159 222 270
Total Cost
1,749| 2,442 2,970
Illustration: 2
The following records are taken from Batliboy Engineering Works Ltd. :

Materials 5,000
Dircct Wages
Variable Factory Overheads 2,500
Fixed Factory Overheads 2,000
Administration Overheads 2.600
Machine Hours 3,000
Factory overheads are absorbed on the basis of machine hours and administrative overheads are
absorbed as a percentage of work cost. The company has received an order of a Job. The following particulars
are available in respect of the Job

Materials
Wages S0
Machine Hours 300
Prepare Job Order Cost Sheet.
Solution
First of all, we will prepare cost sheet on the basis of information given: (i) to find out machine our
rate for recovery of variable factory overheads. (11) machine hour rate for recovery of fixed factory overheads
and (11) percentage of recovery of administrative overheads on the basis of percentage on Factory Cost.

Cost Sheet
Particulars Total Cost

Materials 5,000
(+) Direct Wages 3,500
Prime Cost 8,500
Add: Factory Overheads
Variable 2,500
Fixed 2,000 500
Work Cost 13,000
Add: Administration Overheads 2,600
Total Cost 15,600
ob Costing 14
Machine hour rate for recovery of variable factory overheads
2.500 =0.8333
3,000

Machine hour rate for recovery of fixed factory overheads 2,000 0.6666
3,000
The percentage of Administration overheads to work cost 2,000 x 100 20%
13,000

Cost Sheet for the Job

Particulars
Total Cost
Materials 750
(+)Wages 350
Prime Cost ,100
Add: Factory Overheads
Variabl: 300 Hours x 0.83333 250

Fixed: 300 Hours x ?0.666 200 450

Work Cost I,550
Add: Administration Overheads
-1,550 x 20%
20% on Works Cost
310
Total Cost for Job 1,860
lustration :3
The following information is received for Job No. 139 of A Company Ltd.
Materials 3,415
Wages
DepartmentI 80 hours at * 2.50 per hour
Department II 60 hours at? 4.00 per hour
Overhead expenses were estimated as follows :
Variable Overheads
Department 5,000 for 4,000 direct labour hours
Department II 6,000 for 3,000 direct labour hours
Estimated at R 7,500 for 10,000 hours
Fixed Overheads:
You are required to calculate the cost of Job No. 139 and estimate the percentage of profit carnedif
the selling price quoted was 4,750.
Solution
Cost Sheet for Job No. 139

Particulars
Direct Materials
Direct Wages
415
Department I (80 x? 2.50) 200
Department II (60 x * 4.00) 240 440
Prime Cost 3,855
Overheads
Variable : Department 1: 80 hours x 125 0
(For 4,000 hours - ? 5,000 - so per hour ? 1.25)

120
Department2o0 hours x2
(For 3,000 hours 6,000. For one hour R 2)
220
Fixed : 80 + 6 0 - 1 4 0 hours x ? 0.75 = R 7,500 10,000)
4,07
105

Total Cost 4,180

( ) Profit 570
Selling Price 4,750
On 4,750 Selling Price 570 Profit

100 Selling Price ()

()4,750 12%
Rate of Profit on Selling Price = 12%.

Illustration: 4
As a cost accountant of a company, you find that the selling price of a product has been calculated as
follows
Materials 70.00
Direct Wages: 18 hours at 2.50 per hour 5.000
(Dept. A 8 hours, Dept. B 6 hours, Dept. C4 hours)
142 S'SS Cost Accounting -I (F.Y.B.C.A.F) (Sem-)

Direct Expenses 5.00

Prime Cost
120.0
Add: Overheads 33 1/3% on Prime Cost) 40.00
Total Cost
160.00
Ananalysis of the previous year's profit and loss account shows the following:
Materials 1,50,000 Pactory Overheads
Direct Wages Dept. A 5,000
Dept. 10,000 Dept. B 9,000

Dept. ,000 Dept..C 2,000 16,000

Dept. 8,000 30,000SellingOverheads 20,
Specific Materialls +,000Sales Less Returns
2,50,000
Net Profit 30,000
The average daily wage rate is identical in all the three departments.
You are required to
i) Draw up a Job Cost Sheet.
ii) Calculate the revised cost using the previous year's figures as a basis.
ii) Add to the total job cost 20% for profit and give the final selling price.
Soluti
Athes cost sheet is to be prepared bascd on previous year's figures, we shall first find out the rate of
Overhead per hour.

Dept. A Wages is * 10,000 at 2.50 per hour, hence the total hours=50 4,000 hours
The overheads of Dept. A are 5,000 and direct labour hours are 4,000 and so the
overhead rate per hour=*1.25.
Dept. B Wages are R 12,000 at 2.50 per hour and so direct labour hours are 12,000 2.50=
4,800 hours. Overheads are? 9,000 and so overhead rate per hour =9,000 x 4,800
hrs, =R 1.875
Wages 8,000 +R 2.50 per hour = 3,200 hours overheads R 2,000 +3,200=R0.625.
Dept. C
2. The factory cost was 2,00,000 last year and selling overheads wereR 20,000 which comes to 10%
of factory cost (work cost). This percentage will be used in the Job Sheet.

Cost Sheet for Job No. 421

Materialss 70.00
Wages :
Dept. A 8 hours x 2.50
Dept. B o hours x 2.50
20.00
15.00
C 4 hours 2.50 10.00 45.0
Dept.
Direct Expenses
x
5.0
Prime Cost 120.0
Factory Overheads :
Dept. A 8 hours x 1.25 10.00
Dept, B 6 hours x 1.875 11.25
Dept. C 4 hours x 0.625 2.50 23.7
Works Cost 143.75
Selling Overheads
(0% on Works Cost) 4.375
Total Cost
(+) Profit (20% on Total Cost)
158.125
31.625
Selling Price 189.750
Iilustration: 5
A company uses a pre-determincd overhead rate for production orders on a labour cost basis for the
Department A and machine hour basis for the Department B.
Atthe beginning of2016, the company made the following estimates
B
Direct Labour Cost () 20,00 10,000
Factory Overheads (R) 30,0 50,000
Direct Labour Hours 16,000 5,000
Machine Hours 1,000 20,000
Job Costing 43
You are required to:
. Calculate pre-determined overhead rates for department A and B.
2. Calculate the factory cost of Job Order No. 167, which shows the following details of cost incurred
during 2016 in it completion.

Material Required
Direct Labour Cost
Direct Labour Hours
Machine Hours
3. You are required to calculate the total factory overhecads of Production Order No. 167.
4. Assuming that Job No. 167 consists of 20 units of finished product, calculate the unit cost of a job.
5. At the end of 2016, it was found that actual factory overhead cost amounted to 31,500 for
Department A and 47,000 for Department B. Calculate under or absorbed overheads. (Assuming
that the estimated direct labour hours and machine hours were cqual to actual hours in 2016).

Solution
1. Pre-determined Overhead Recovery Rate for both Departments
Department A Estimatcd Factory Ovencids 100
Estimated Direct Labour Cost
30,000
20,000* T00

1S0%

DepartmentB Estimated Factory Overneadsx 100

Estimated Machine Hours
50,000
20,000 Hours
2.50 Machine hour rate

2 Works Cost for Job No. 167(per unit) Total

Matera 2.00 0 12.00

Direct Labour Cost 5.00 12.00
Factory Overheads
A - ? 5 x 150%
7.50
B 13 hours x 2.50 32.50 40.00
Work COst
14.50 9.50 4. DO

The factory overheads for Production Order No. 167 is 40 ( 7.50+ 32.50)
4. Cost of Job per unit =* 64 + 20 units = 3.20 per unit.

. Rccovery or over or undcr-absorption of overheads :

Actual Overhead Incurred 31,500 47,000

Overheads Recovered
A 20,000 Labour x 150O% 30,000
B 20,000 Machine Hours x 2.50 50,000
Under Recovery 1,500 (3,000)
(Over Recovery)
Thus
1. In Dept. A, actual overhead is more and recovery is less. There is an under-absorption ofR 1,500.
2. In Dept. B, actual overhead is less and recovery 1S more. There 1S an over-absorption of R 3,000.
44 Cost Accounting-I (F.Y.B.C.A.F) (Sem.-)

6. BATCH COSTING
Batch Costing is a type of job costing, In Batch Costing. the cost unit is not a single product but
some specific quantity of nke products at the same tume. A batch is a cost unit consisting of a group
of identical items which maintain their identity through out the stages of production. The items
manufactured are held for stock and sold on demand. The method is followed in industries viz. shoe
industry, biscuit factories, toy manutacturing companies. In a pen manutacturing company, it IS
costuy to produce one pen. Hence, it is economicaly viable to produce pens in batches of 20,000 to
50,000 of a particular design. The procedure of Batch Costing is the same as job costing. Each batch
is given a batch order number. Cost per unit is decided by dividing the total cost of production by
the number of units ina batch.
Economic Batch Quantity
In batch costing, determination of economic batch size or lot size is most important work. For
deciding economic batch size, the cost has to be grouped into setting up costs and carrying costs.
Economic batch quantity is dectided at the point where carrying costs are equal to seting up costs.
At this stage total cost is also minimum. It can be decided by the following fomula :

E.B.Q. = IC
Annual demand for the product
S Setting up cost per batch
Annual rate of interest
Unit cost of production
lustratrion: 6
Following information is related to the manufacture of a component X 505 in a cost centre:
Cost of Material paise per component
Operator's Wages paise per hour
Machine hour rate S0
Setting up time of the machine 2 hours and 20 minutes.
Manufacturing time 10 minutes per component.
Prepare a cost sheet showing both production and setting up costs, total and per unit, when the batch
consists ot 100 components
Solution
Statement of Batch Costing
Per Unit 1otal

Setting up Costs:
Operator's Wages
2 hrs, 20 minutes @72 paise per hourr 1.68
Machine Overheads
2 hrs, 20 minutes @R 1.50 3.50
Total setting up costs 05 5.18
Production Costs
Material cost
100 units @ 6 pase
Vages
1,000 minutes @ 72 paise 12 12
Machine Overheads
1,000 minutes @ 1.50 25
25
Total 48.18

Illustratrion:7
Calculate E.B.Q. from the following information:
Annual demand 4,000 units
Setting up cost 100
Manufacturing cost per unit 200
Rate of interest p.a. 10% (Adapted)y
 ob Costing 145
Solution

E.B.Q. 2DC
TC
2x 4,000 x 100
V.10x 200
200 units

Illustration: 8
The standard production for a particular work order is 20 units per day and piece rate wages is 60 paise
per unit if daily production is 20 units or more. The rate Is S0 paise per unit it production is less than 20 units.
Cost of material is 30 paise per unit. It is proposed to charge factory overheads under one of the tollowing
methods
i) 100% on Labour Cost
ii) 80% on Prime Cost
Tabulate the above data in the form of a suitable statement and indicate the factory cost per unit, under
each of the above methods, if the daily production is (a) 15 units, (b) 20 units, (c) 25 units. (1.c.w
4.)
Solution
i) Computation of Factory Cost per unit
[Recovery of factory overheads basing on 100% on Labour Cost)
a) Production per day (Units) 20 2
Material (a&0.30) 50 6.00 7.50
Labour For 15 units (@0.50) 7.50
For 20 and 25 units (@0.60) 12.00 15.00
Prime Cost 12.00 18.00 22.50
Factory Overheads (100% on Labour Cost) 7.50 12.00 15.00
b) Factory Cost
19.50 30.00 37.50
Factory Cost per Unit (b)+(a) 1.30 1.50 1.50p
ii) Computation of Factory Cost per unit
(Recovery of factory overheads basing on 80%% on Prime Cost
a) Production per day (OnitsS 20 25
Material (@ o.30) 4.50 6.00 7.50
Labour (For 15 [email protected]) 7.50
(For 20 and 25 units (@0.60) 12.00 15.00
Prime Cost 12.00 18.00 22.50
Factory Overheads (80% on Prime Cost) 9.60 1.40 18.00
b) Factory Cost 21.60 32.40 40.50
Factory Cost per Unit (b) +(a) .44
1.62 .62
Illustration:9
Leo Limited undertakes to supply 1,000 units of a component per month for the months of January,
February and March, 2009. Every month a batch order is opencd against which materials and labour cost are
booked at actuals. Overheads are levicd at a rate per labour hour. The selling price is contracted at
R15 per unit.
From the following data, present the cost and profit per unit of each batch order and the overall position
of the order for the 3,000 units.
Month Batch Output Material Cost Labour Cost
(Numbers)
January, 2008 1,250 6,250 2 ,500
February, 2008 1,500 9,000 3,000
March, 2008 1,000 5,000 2,000
Labouris paid at the rate of 2per hour. The other details are:
Month Overheads Total Labour
Hours

January, 2008 12,000 4,000

February, 2008 9,000 4,500
March, 2008 15,000 5,000
(C.A.)
 146 Cost Accounting - I ([Link]) (Sem-)

Solution
Statement of Cost and profit per Batch of Leo Ltd. for the Quarter ended 31st March, 2009.

March Total
Month January February
i Batch Output (Numbers) 250 500 1,000 .760
ii) Sales 18,7500 22,500 15,000 56,250
iii) Costs:
Material 6,250 9,000 5,000 20,250
Wages 2,500 3,000 2,000 ,500
Overheads 3,750 3,000 3,000 9,750
Total
12,500 15,000 10,000 37,500
V Profit (i)-t 6,250 7,500 5,000 18,750
Sales per Unit ( 15.00 15.00 .00
Cost per Unit (iii)/ 10.00 10,00 10.00
Profit per Unit 5.00 .00 .00
Overall position of the order for 3,000 Units
Sales (3,000 x 15) 45.000
Less: Cost (3,000 x 10) 30,000
Profit 15,000

wwangtaca
1. Calculation of Labour hours
Labour hour= Labour Cost/ Labour Cost per hour
(Hours)
Jan. 2008 R2,500/R 2) 1,250
Feb. "2008 R 3,000/ 2) 1,500
March 2008 R 2,000/ 2) 1,000
2. Calculation of overhead for the batch
i) Overhead per hour = Total overhead / Total Labour hours

an. "2008 R 12,000/ 4,000 hours)

Feb. "2008 R 9,000/4,500 hours) R2
March 2008 R 15,000/ 5,000 hours)
ii) Overhead per batch = Labour hours x Overheads per hour

Jan. '2008 R1,250 hours x R 3) 3,750

Feb. 2008 (R1,300 hours x 2 ) 3,000
March "2008 (R 1,000 hours x 3) 3,000
Ilustration: 10
X Ltd. having fiftcen different types of automatic machines furnishes information as under for 2008-09:
i) Overhead expenses : Factory rent ? 96,000 (Floor area 80,000 sq. fi.). Heat and gas 45,000 and
supervisionR 1,20,000.
ii) Wages of the operator areR 48 per day at8 hours. He attends to one machine when it is under set
up and two machines while they are under operation.
In respect of machine B (one of the above machines) the following particulars are furnished:
i) Cost of machine 45,000. Life of machine - 10 years and scrap value at the end of its life R 5,000.

ii) Annual expenses on special equipment attached to the machine are estimated at 3,000.
iin) Estimated operation time of the machine is 3,600 hours while set up time is 400 hours per annum.
iv) The machine occupies 5,000 sq. ft. of floor area.
v) Power cost 2 per hour while machine is in operation.
Find out the comprehensive machine hour rate of machine B. Also find out machine costs to be
absorbed in respect of use of machine B on the following two work-orders

Work-order 31 Work-order 32
Machine set up time 0
(Hours) T0

Machine operationtime (Hours) 90 180

(C.A. Inter7)
 Job Costing 147
Solution
Computation of Standing Charges per Machine hour of Machine B
Standing Charges
Factory Rent 5,000sq. ft.J
96,000* 80,000 6,000
Heat and Gas R 45,000/ 15 machines) 3,000
Supervision R 1,20,000/ 15 machines) 8,000
Depreciation 45,000-*5,000 4,000
L 10 years
Annual expenses on special equipment 3,000
otal 24,000
Standing Charges per hour (24,000 / 4,000 hrs,
Computation of Comprehensive Machine hour rate of Machine B_ per hou
Particulars Setup Operation
rate rate

Standing Charges
Machine Expensess
Power
Vages
Comprehensive Machine hour rate
Statement showing absorption of Machine cost of Machine B to Two Work-Orders.
Particulars Work Order 31 W o r k Order 32
Hours Rate Amount Hours Rate Amount

Setup time Cost 12 120 20 12 240

Operation Cost 0
990 80 11
1,980
Total Cost 1,110 2.220
Illustration: 11
Delta Engineering Limited produces a uniform type of product and has a manufacturing capacity of
3,000 units per week of 48 hours. From the cost records of the Company, the following data are available
relating to output and cost for three consecutive wecks:
Week Unit Direct Material Direct Labour Factory ODeretd
Number Manufactuured (Variable and Fxed)

,200 9,000 3,600 ,000

2 1,600 12,000 4,800 ,000
1,800 13,500 5,400 34,000
Assuming that the Company charges a profit of 20% on selling price. Find out the selling price per unit
when the weckly output is 2,000 units.
(1.C.W.A. Inter)
Solution
Statement of Profit (Production 2,000 Units)
Particulars Total Per unit

Amount
Direct Material 15,000 7.50
Direct Labour 6,000 3.00
Variable Overheads 10,000 5.00
Fixed Overheads 25,000 2.
Total Cost of Sales 56,000 28.00
Add: Profit (20% on Selling Price or 25% of Cost) 14,000 7.00
Sales 70,000 35.00
 Cost Accounting - I (F. [Link]) (Sem-D

1. Computation of Variable Overheads per Unit

Week Production Units
Factory Overheads ()
1,200 31,000
,800 34,000
Change o00 3,000
Variable Overhead per Unit

Change in Factory Overhead = R5 per unit.

Change in Production 600 units
2. Computation of Fixed Overheads
Total Factory Overhead 31,000
Less: Variable Componcnt of Factory Overhcad (1.200 units x 5) 6,000
Fixed Factory Overhead 25,000
7. EXERCISES

7.1 Objective Questions

I. Multiple Choice Questions:
is applicable to
Job costing
a) Printing Press b) Drug Manufacturing Companies
c) Refineries d) Cement Manufacturing Companies
Job costing involves
a) Made to order production b) Mass scale production
c)Small sScale production d) Rigid production
3. Job is performed as per
a Customer specification b) General specifications
c) Standard specification d) None of the above
Material required for job is drawn from the stores on
a) Material requisition Material order
c) Material note d) Bin card
In job costing cost of a job is decided on
a) Completion of the job b) at the end of the year
c)receipt of order from the customer d) None of the above
[Ans.(1 - a), ( 2 - a ) , (3 -a), (4- a), (5-a)]

I. Fill in the Blanks with suitable words

1. Workshop follows
2. Overheads relating to job are decided on the basis of of overheads.
3. Material is drawn from the stores against
4. Job completion report is sent by the shop
Small organisations follows
to department.
Ans.(1) Job costing: (2) Rate of absorption; (3) Material Requisition; (4) Production Planning: (5) Job
Costing]
II. Matech the following columns:

Column "A Column 'B

1. Job costing a) Work Order
2. Production orde
b) Material Requisition
3. Material
drawn against c) Wage analysis shecet
4. Wages d) Shows completion of job
5. Job Completion Report e) Production as per order
DBinCard
[Ans. (1 -e), (2-a), (3-b). (4-c), (5-d)]
Job Costings 149
IV. State with Reasons whether the following statements are True or False :
Job costing is followed by Bakeries.
Cost of a job is decided after completion of the job.
Job costing is followed when mass Scale production is undertaken.
Overheads are decided as per the rate of absorption of overheads.
|Ans. True: 1,2,4 False: 5]

V. Short Notes:
Features of job costing
Production order
Job cost sheet
4. Limitations of job costing
7.2 Practical Problems
.The information given below has been taken from the costing records of an engincering work in respect
of Job. No. 999:

Material 37,000
Wages
Dept. A: 30 hours @ 27 per hour.
Dept. B: 20 hours (@ R 18 per hour
Dept. C: 10 hours @ 45 per hour.
Variable overheads estimated:
Dept. A : for 2,500 hours 45,000.
Dept. B: for 750 hours R 27,000
Dept. C: for 250 hours R 18,000
Fixed overheads estimated 1,20,000 for 5,000 hours.
You are required to ascertain the cost of the Job No. 999.
[Ans. Total cost for job No. 999 42,040, For preparing job cost sheet: (1) Material 37,000;
(2) Wages:R 1,620 (A 30 x 27= 810 + B 20 x 18 = 360 +C 10 x 45 = 450 1,620); (3) Variable

overheads 1,980 (A 45,000+ 2,500= 18 x 30 540 + B 27,000 x 750= 36 x 20 720 +C 18,000x

250= 72 x 10= 720= 1,980) + Fixed overheads? 1,440 (1,20,000/ 5,000= 24 x 60 (30 + 20+ 10)=
1,440)= 42,040]
Following information has been obtained in respect of Job No. 420
Materials 10,000

Wages
Department l 1 2 5 hours, at the rate of 3 per hour
Department 2 100 hours, at the rate of R 5 per hour

Variable Overheads
Departmentl 9,375, which is for 6,250 labour hours.
Department 2 7,500, which is for 3,750 labour hours.
Fixed Overheads 18,750 for 12,500 hours
From the above information caleulate the cost of Job No. 420 and determine the selling price, after
adding 20% profit on selling price
[Ans. Total cost for Job No. 420 11,600, Profit ? 2,900, Selling price R 14,500.
Job Cost: (1) Material 10,000; (2) LabourR 875 (Dept. 1 R 375 +Dept. 2 R S00); (3) Variable
overheads in Dept. I as expenses are 9,375 for 6,250 labour hours, the hourly rate would be R1.50. In
dept. 2 as expenscs are 7,500 for 3,750 labour hours, the hourly rate would be R 2, Total variable exp.
3 8 7 . 5 0 (In Dept. I : 1 2 5 hourS x 1 . 5 0 = 187.50 + Dept. 2 : 100 hours x 2 = 2 0 0 = 387.50)

(4) Fixed overheads 337.50 (AS expenses are 18,750 for 12,500 hours, hourly rate is R 1.50. Total
cost 11,600 + 20% profit on selling price 2,900= Selling price R 14,300]

3. The information given below has bcen taken from the cost records of a factory in respect of
Job No. 007:

1. Direct Materials 4,010

2.
Wages
Department A 60 hours @3 per hour
DepartmentB 40 hours @R2 per hour
 Cost Accounting-I (F. [Link]) (Sem-D
Department C 20 hours @R5 per hour
3. The variable overheads are as follows:
Department ARS,000 for 5,000 hours
Department BR 3,000 for 1,500 hours
Department CR 2,000 for 500 hours
4 Fixed expenses: 20,000 for 10,000 working hours
Calculate the cost of Job No. 007 and the price for the Job to give a profit 25% on the selling price.
[Ans. Sclling price 6,440 (Material R 4,010 +Wages 360 (A 60 x 3= 180+B 40 x 2 80+C 20x
5 = 100 = 360), + Variable overheads 220 (A 60 x 1 = 60 + B 40 x2 = 80 +C 20 x 4 80=220+
Fixed Exp. 240 (120 x 2)= Total CostR 4,830 + Profit 1,610 = Selling Price 6,440]
information is No. 175 of Alvina Ltd,
The following
Materials
for Job
R4,500
Company :

Wages
Department 1 160 hours at 3 per hour
Department 120 hours 4 per hour
2 at
Overheads were estimated as followS:
Department1 6,000 for 3,000 dircet labour hour
Department 2 8,000 for 4,000 direct labour hour.
Fixed overheads estimated at R 8,000 for R 4,000hours.
You are required to caleulate the cost of Job No. 175.
[Ans. Total cost for Job No. 1756,580
Job Cost: (1) Material 4,500; (2) Wages 960 [Dept. I (160 x 3)=480 + Dept. II (120 x 4)= 480=
960; (3) Overhead Exp. :Variable : Dept. I (160 x 2 ) = 320 + Dept. II (120 x 2) = 240 = 560 + Fixed

Exp.R 560 (160 + 120 =280 x 2=560)= Total CostR 6,580]

Following are the details available from a company's budget
Particulars
i) Direct Materials 25,500
i) Direct Wages
Machine Department (2,500 hours) 5,025
ASsembling Department (1,500 hours)
Prime Cost
5,025 11,250
36,750
ii) Factory Overhead Expense
Machine Department 9,375
Assembling Department
Factory Cost
3,375 12,750
49,500
iv) Administration Overhead Expense 16,500
Production Cost 66,000
v) Selling and Distribution Overhead Expense 12,375
Total Cost
78,375
Administration overhead and selling and distribution overhead expenses are recovered on the basis of
factory cost. Company uses absorption costing method.
From the above intormations:
) Find out the rate of wages per hour of each department and rate of factory overheads per hour of

i)
cach department.
Find out the recovery rate of administration overhcads and selling distribution overlheads on factory
cost.
Find out the selling price of Job No. 777 from the following informations :
i) Direct Materials 420
ii) Direct Wages hours
Machine Department 50 hours
Assembling Department )hours
i) Profit is to be counted as 25%% on selling price.
[Ans. Total cost for Job No. 777 1,425 and Selling priceR 1,900. Overhead recovery rates : Direct
wages per hour Machine Dept. 2.25 (5,6252,500 hours) and Assembly Dept. F 3.75 (5,625
1.500 hours) works overheads as per hour : Machine Dept. 3.75 (9,375 + 2,500) and Assembly Dept.
* 2.25 (5,375+ 1,500), Admini. Overheads 33 1/5% on works cost and selling overheads 25%, Job cost
1,425 [Materials 420 + Direct Wages: Machine 50 hours x 2.25= 112.50 + Assembly 30 hours x
3.75 R 112.50 = 225 = Prime Cost 645 + Factory Exp. 244 (Machine 50 x 3.75 = 187.50
Job Costing S'S' 151
Assembly 30 x 2.25 67.50 255) = Factory cost 900+ Admini. Overheads 33 1/3% of R 900
3 0 0 = Production cost 1,200 + Selling and distribution overheads 25% of R 900 R 225= 1,425
Total Cost + Profit 25% on selling priceR 475= 1,900 selling price]
6. The following informations have been obtained from the costing records of Dhruvi Co. Ltd. in respect
of Job No. 444:
Materials 52,000
Wages
Dept. X: 180 hours at R 30 per hour
Dept. Y : 120 hours at R S0 per hour
Dept. Z: 60 hours at * 20 per hour
Variable Overheads :
Dept. X : R 1,00,000 for R 5,000 direct labour hours.
Dept. Y :R90,000 for R 3,000 dircct labour hours
Dept. Z :R 40,000 for R 2,000 direct labour hours.
Fixed Overheads
Estimated 3,00,000 for 10,000 normal working hours.
Calculate the cost of Job No. 444 and also find the price to be charged so as to earn a profit 25% on
selling price.
[Ans. Selling price 1,11,733 [Materials 52,000 +Wages 12,000 [Dept. X (180 x 30)= 5,400+
Dept. Y (120 x 50)= 6,000 + (Sept. Z= 60 x 20)= 1,200= 12,600] + Variable Overhead Exp. 7 8,400
Dept. X 180x 20 3,600 + Dept. Y 120 x 30=3,600+Dept. Z 60 x 7 83,800 + Profit 25% on selling
price 27,933 = Selling Price 1,11,753]

A company has two manufacturing shops. The shop supervisor presented the following cost for Job No.
10 to determine the selling price.
(per unit)
Material 70
Direct Wages:
14 Hours xR 2.50 per hour 5
Dept. I:8 hours
Dept. 2:6 hours
Direct Expenses (Stores)
Prime Cost 110
Add : Overhead Expenses
3 1/3% of Price Cost
147
Analysis of the Profit and Loss Accountshows the following
Particulars P'articulars
Material Used 1,50,000|Sales Less Return 2,50,000p

Direct Wages
Dept. 1 ,000
Dept. 2 12,000 22,000
Stores Expenses 4,000
Overheads
Dept. 5,000
Dept. 9,000 14.000
1,90,000
Gross Profit
60,000
2,50,000 2,50,000
It is noted that average hourly rates for the Dept. I and Dept. 2 are similar.
Y o u a r e required t o -

1. Draw up Job No. 10 cost sheet.

2. Calculate the revised cost using overhead figures as shown in the Profit and Loss Account as the
basis for charging overheads to dept. I and 2.
Add 20% of total costs to determine selling price.
Ans.
1. Recovery rate for overheads on the basis of direct labour rates: For Dept. I R 1.25 per hour and tor
Dept. 2R 1.875 per hour (Dept. I = Dircct wages 10,000 and wage rate per hour R 2.50, hence
152 Cost Accounting-I (F: Y.B. [Link]) (Sem.-
direct labour hours= 10,000/2.50 = 4,000 hours and overheads 5,000. So absorption rate
5,000/4,000 =R 1.25
per hour)
2. If recovery rate is based on percentage of direct wages: Dept. I overheads 5,000 and direct
wages 10,000. Hence overheads recovery percentage 50% on direct wages and for dept. 2 it
would be 75%.
3. Preparing Job cost sheet on the basis of direct labour hour rate: Total cost 131.25 (Materials 70
Labour R 3 4 + Direct Exp. 5 =* 10 + Overheads Dept. 1 = 8 hours * 1.25 = * 10 and

Dept. 2-6 hours x 1.875 11.25= Total Cost 131.25+ 20% profit 26.25 =R 157.50 selling
price.
Job cost sheet on the basis of percentage of direct wages, would be prepared on the similar line].

8 From the records ofSanjay &Co. the following budgeted details are available
Direct Materials 2,25,000
Direct Wages
Machine Shop (12,000 hours) 75,0
Assembly Shop (10,000 hours) 60,000 1,35,000
Work Overheads
Machine shop 95,5
Assembly Shop 44,500 1,40,000
Administrative Overheads 1,00,0
Selling and Distribution Overheads 1,50,000
The company is following absorption method of costing.
You are required to prepare:
i) Schedule of overhead recovery rates from the available information and
i) Cost estimates of a job on the basis of following information
Materials:

A-50 kg @ 20 per kg
B-30 kg @t 30 per kg
Labour :
Machine Shop -32 hours
Assembly shop 48 hours
[Ans. Direct Materials 2,25,000 + Direct Wages 1,35,000 (Machine shop 75,000+ Assembly shop
60,000) Prime Cost ? 3,60,000 + Work Overheads: , 4 0 , 0 0 0 (Machine shop 95,000 + Assembly

shop 44,500)= Work cost 5,00,000 + Admini. Overheads? 1,00,000 = Cost o f production 6,00,000 +

Selling and distribution overheads 1,50,000 Total cost 7,50,000.

Recovery Rates - Wages: Machine shop R 6.25 (75,000 + 12,000) and Assembly shop * 6 (60,000
10m000). Work Overheads: Machine shop 7.96 (95,500 12,000) and Assembly shop 4.45 (44,500
10,000), Recovery rate of Admini. Overhead on works cost 20% (1.00.000 x 100/ 5,00,000),
Recovery rate of selling and distribution overhead on cost of production 25% (1,50,000 x 100
6,00,000).
Total Cost o f J o b : Direct Material 1,900 (A 50 x 2 0 = 1,000 + B 30 x 30 = 900) + Direct wages

4 8 8 (Machine 32 x 6.25 = 200 + Assembly 48 x 6 288 = 488) = Prime Cost 2,388 + Works
overheads : R 468.32 (Machine 32 x 7.96 = 254.72+ Assembly 48 x 4.45 213.60) = Work cost
2,856.32 + Admini. Overheads (20% of work cost) 571.26= Production cost 3,427.38 + Selling
distribution exp. (25% of production cost) 856.90= Total Cost 4,284.48]
9. The following information regarding Job No. 555 is taken from cost accounts of an Engincering
factory:
Materials 24,060
Labour : Department A 60 hours, ? 18 per hour
DepartmentB 40 hours, 12 per hour
Department C 20 hours, ? 30 per hour
The overhead expenses regarding above three departments are estimated as under
Variable Overheads :
Department AR 30,000 for 5,000 labour hours.
Department B* 18,000 for 1,500 labour hours
C7 80,000 general working hours.
Department for 10,00
Calculate total cost of Job No. 555.
Job Costing 153
'
[Ans. Total cost for Job No. 555 : 28,500. For preparing job cost shecet: (1) Material Cost 24,060;
(2) Labour cost 2,160 (A * 1,080, B R 480, CR 600), (3) Variable Overheads : In Dept. A 30,000
Exp. for 5,000 labour hours, so per labour hour = 30,000 + 5,000 = R 6 ; In Dept. A 60 hours x ? 6 =

360, Dept. B 40 hours x 12=480, Dept. C= 20 hours x 24= 480; Total variable overheads (360
+ 480 + 480) 1,320. (4) Fixed Overheads 960 ( 80,000 for 10,000 hours, so per hour 8; Total 120
hours, so 120 x 8 =R 960, Total cost = Material 24,060 + Labour 2,160 + Variable overhead

1,320 + Fixed overhead 960=* 28,500

10. Following information has been obtained in respect of Job No. 151:
Materials 8,000
Wages :
Department I: 100 hours, at the rate of 3 per hour
Department 2: 80 hours, at the rate of 5 per hour
Variable Overheads:
Departmentl:R 7,500, which is for S,000 labour hours.
Department 2:R 6,000, which is for 3,000 labour hours
Fixed Overheads:
15,000 for 10,000 hours.
From the above information calculate the cost of Job No. 151 and determine the selling price, after
adding 25% profit on cost price.
[Ans. Total cost for Job No. 151 R 9,280, Selling Price 11,600 (25% profit on cost=? 2,320).
Job Cost: (1) Material cost 8,000 (2) Labour 700 (Dept. I R 300 +Dept. Il R 400. (3) Variable
overheads: In Dept. I an expenses are 7,500 for 5,000 labour hours, the hourly rate would beR 1.50,
in Dept. II as expenses are 6,000 for 3,000 labour hours, the hourly rate would be R 2, Total variable
exp. 310. (In Dep. I : 100 hours x 1 . 5 0 = 150 + In Dept. II: 80 Hours x 2 = 160 = 310). (4) Fixed

overheads R 270 (An expenses are 15.000 for 10,000 hours, hourly rate is 1.50, Total hours 100+
80 180, Total Fixed OverheadsR 270 (180 x I.50). (4) Total cost9,280 + 25% Profit on cost
R 2,320 = Selling price 11,600]

11. As a new cost account appointed in a company you find that the selling price of Job No. 101 has been
calculated as follows

Materials 120.80
Direct Wages: 22 hours at 2.50 per hour 55.0D0
(Dept. A 10 hours, Dept. B 4 hours, Dept. C 8 hours) 175.8
Add: Overheads (33 1/3 on Prime Cost) o8.00
234.40
Analysis of the Profit and Loss Account shows the following:
Dr. Cr.
Particulars Particulars
Material Used
3,87,500Sales 6,75,000
Direct Wages
Dept. . ,000
Dept. 30,000
Dept. 20,000 75,000
Factory Overhead Exp.
Dept. A 2,,500
Dept.B
D 20,000
Dept. 5,000 37,500

Gross Profit
,7,000
6,75,0000 6,75,000
Selling Expenses 25,000
Net Profit 1,50,000| Gross Profit B/f 1,75,000
L,75,000|L 1,75,000
You are required to -

I. Draw up Job No. 101 Cost Sheet.

2. Calculate the revised cost using overhead figures as shown in the last year.
3. Add 10% of total costs to determine selling price.
54 SP'S'S Cost Accounting I (F. Y.B.C.A.F) (Sem-)
[Ans. Selling price 286. Total cost 260 + Profit 26. (1) Factory overhead exp. per hours in Dept. A
wages 25,000+ Direct wages 2.50 per hour = 10,000 hours and factory exp. * 12,500, so overheads

per hour 1.25, Dept. 1.67 and dep. C0.63.

(2) Factory cost as per given in Profit and Loss A/c ?5,00,000 (Material 3,87,500 + Wages 75,00+
Factory Exp. 37,500) and selling exp. 1,50,000. So selling expenses 30% of factory cost.
(3) Preparing Job sheet: (i) Material per unit 120.80 (ii) Wages 55, (ii) Factory Exp. R 24.20 (A: 10
hours x 1.25 + B 4 hours x 1.67 + C 8 hours x 0.63 = Factory Cost 200, (iv) Selling exp. 30% of

factory cost ? 60= Total Cost R 260.]

'S'