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Process costing.ppt
Process costing.ppt
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jobe.ppt

  1. 1. Job Costing Job costing is that form of specific order costing which applies where the work is undertaken as an identifiable unit such as: (1)Manufacture of products to customer’s specific requorements. (2)Fabrication of certain materials where raw materials are supplied by the customers. (3)Repairs are done within a factory or at customers premises. (4)Manufacturing goods are not for stock purposes but for immediate delivery once these are completed in all respects. (5)Internal capital expenditure jobs etc.
  2. 2. FEATURES OF JOB ORDER COSTING 1. The production is generally against customer’s order but not for stock. 2. Each job has its own characteristics and needs special treatments. 3. There is no uniformaty in the flow of the production from department to department 4. Each job is treated as a cost unit under the method of costing. 5. (5) Each job is distinctively identified by a production order throughout the production stage. 6. (6) The cost of production of every job is ascertained after the completion of job. 7. (7) The work-in-progress differs from period to period accoring to the number of jobs in hand.
  3. 3. OBJECTIVES OF JOB ORDER COSTING (1)It helps to find out the cost of production of every job or order and to know the profit or loss made on its execution. (2)It helps the managment to make more accurate estimates for costs of similar jobs to be executed in future on the basis past records (3)It helps the management to control the operational in efficiency by making a comparison of actual costs with estimated once. (4)It helps the management to provide a valuation of work-in-progress
  4. 4. ADVANTAGES OF JOB ORDER COST SYSTEM (1)It provides a detailed analysis of cost of material, wages and overheads classified by the funtions , departments and nature of expenses which enable the managment to determine the operating efficency of the diffrent factors of the production, production centres and funtional units . (2)It records costs more accurately snd facilitates cost control by comparing actuals and estimates (3)It enables the managment to asertain which of the job are most profitable than the others. (4)It provides basis for estimating the cost of similar jobs taken up in future thus and helps in future production planing (5)Determination of predetermine overhead rates in job costing necessitates the application of a system of budgetary control of everhead with all its advantages (6)Identification of spoilage and defectives with the respective production orders and department may enable the management to take effective streps in reducing these to the minimum. (7)The detailed cost records the past years can be used for stapistical purpoeses in the determination of the trends of cost of the diffrent types of obs and there relative efficiencies. (8)It is usefull in quoting cost plus contract.
  5. 5. DISADVANTAGES OF JOB ORDER COSTING (1)It involves a great deal of clerical work in recording daily the cost of material issued, wages expended and overheads chargeable. (2)The scope of committing mistakes is enough as the cost of one job may be wrongly posted to the cost of other job. (3)Cost comparisn among diffrent jobs becomes difficult especially when drastic changes take place. (4)Determination of overhead rates may involve budgeting of overhead expensis and the bases of the overhead appointments and absorption but unless such budgeting is complete. (5)Job costing is historical costing which ascertains the cost of jobs are products after it has been manufatured.
  6. 6. ILLUSTRATION The information given below has been taken from the cost records of a factory in respect of job number 707 Direct material Rs. 4010 Wages details : Department-A :60 hours @Rs. 3 per hour -B : 40 hours @ Rs. 2 per hour -C :20 hours @Rs. 5 per hours The variables overheads are as follows -: Department -A: Rs. 5000 for 5000 hours -B : Rs. 3000 for 1500 hours - C : Rs. 2000 for 500 hours Fixed epenses estimated at Rs. 20,000 for 10,000 working hours . Calculate the cost of number 707 and the prices for the jobs to give a profit 25% on the selling price
  7. 7. SOLUTION Cost sheet of job number 707 Direct Materials Wages : Department A :60XRs. 3 180 “ B :40XRs. 2 80 “ C :20XRs. 5 100 Prime Cost 360 Rs Rs 4,010 4370 Overheades Variables (1) : Department A :60XRs. 1 60 “ B :40XRs. 2 80 “ C :20XRs. 4 80 Fixed (2) : 120 hr. @ Rs. 2 per hours 240 Cost of the job 4830 Profit (33 220 1 3 % on the cost or 25% on selling price 1,610 Celling price 6,440
  8. 8. Working Notes (1)Variable Overhead Rates: Department A = Rs. 5,000/5,000 Hrs. =Rs. 1 per hour - B = Rs. 3,000/1,500 Hrs. =Rs. 2 per hour - C = Rs. 2,000/500 Hrs. = Rs. 4 per hour (2) Fixed Overhead Rates = Rs. 20,000/10,000 Hrs. =Rs. 2 per hour
  9. 9. Work-in-progress Sometimes consolodated completed jobs account is to be prepared along with consolidated work-in-progress account. The preparation of these accounts is disscussed as under : (1)The consolidated jobs account is debited with the total amount spent on materials, labour and overheads in respect of all completed jobs and credited by the ammonts recieved from customers on account of completed jobs. The diffrence is the profit or loss on completed jobs. (2)The consolidated work-in-progress account is periodically debited with all the costs, direct and indirert, incurred in the execution of the jobs and credited with the cost of completed jobs.The balance in this account at any time represents the cost of jobs not yet completed.
  10. 10. Batch Costing Batch costing is a form of specific order costing. A finished product may require diffrent components for assembly and may be manufactured in ecnomical batch lots. Batch costing mathod is adopted in such cases to calculate the cost of each such batch. Cost per unit is ascertained by dividing the total cost of a batch by number of items produced in that batch.
  11. 11. The formula to be used for calculation of ecnomic lot size is Q= 2US C Where Q =Qty. Or Units of products in the Ecnomic batch S =Set-up cost per batch C =Carrying cost per units of production p.a. U =Annual Units of production.

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