Solution Manual For Financial Statement Analysis, 13th Edition By Charles H. ...
jobe.ppt
1.
2. 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.
3. 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.
4. 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
5. 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.
6. 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.
7. 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
8. 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
9. 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
10. 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.
11. 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.
12. 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.