9 Job Costing
CHAPTER
Job Costing • It is that form of specific order costing under which each job is treated as a cost
unit and costs are accumulated and ascertained separately for each job.
• In other words, it is that form of specific order costing which applies where
work is undertaken according to customer’s requirement.
• It is generally used in industries where production is not on continuous basis,
rather it is only when order from customers are received according to their
specifications e.g. printing press, repair shop, etc.
• In this method cost of each job is computed by preparing the Job Cost Sheet.
Features of • Each job is separately identifiable and has its own special characteristics.
Job Costing • Each job is a separate cost unit and each job needs to be costed separately.
• Flow of production from process to process or department to department differs
from job to job.
• Each job is assigned a specific job order number.
• Distinctiveness of each job remains maintained throughout from its
commencement to completion.
• Jobs are generally costed after the completion of jobs.
• Whenever required, estimated job cost sheet can be prepared before
commencement of jobs for submitting renders for the jobs.
Difference Basis Job Costing Process Costing
between
Method It is used to ascertain cost of It is used to ascertain cost of a
Job Costing
each job. product at each process or stage
and Process of manufacture.
Costing
Cost Cost is determined Cost of a product is determined by
determination separately for each job. accumulating cost of each process.
End product The end product of one job is The output of a process becomes
the finished product itself. the input for the next process.
Cost collection The cost is collected on the The cost is collected by period i.e.
basis of job order. on time basis.
Cost Cost is computed or estimated Costs are computed for each
estimation before the production. process at the end of each period.
WIP There may or may not be There is generally some WIP at
work in progress at the end. the beginning as well as end.
Supervision Detailed supervision and Supervision and control is
control is needed. comparatively easier.
PRACTICE QUESTIONS
1. The manufacturing cost of a work order is `1,00,000; 8% of the production against that order
spoiled and the rejection is estimated to have a realizable value of `2,000 only. The normal rate
of spoilage is 2%. Record this in the costing journal. [SM]
2. The following data presented by the supervisor of a factory for a Job. [SM, Nov 2019]
` per unit
Direct material 120
Direct wages @ `4 per hour 60
(Department A-4 hrs., B-7hrs, C-2hrs & D-2hrs)
Chargeable Expenses 20
Total 200
Analysis of the Profit and Loss Account for the year ended 31st March 2019
` `
Material used 2,00,000 Sales 4,30,000
Direct Wages:
Dept. A 12,000
Dept. B 8,000
Dept. C 10,000
Dept. D 20,000 50,000
Special Stores Items 6,000
Overheads:
Dept. A 12,000
Dept. B 6,000
Dept. C 9,000
Dept. D 17,000 44,000
Gross Profit c/d 1,30,000 __________
4,30,000 4,30,000
Selling Expenses 90,000 Gross Profit b/d 1,30,000
Net Profit 40,000 __________
1,30,000 1,30,000
It is also to be noted that average hourly rates for all the four departments are similar. Required:
(i) Prepare a Job Cost Sheet
(ii) Calculate the entire revised cost using the above figures as the base.
(iii) Add 20% profit on selling price to determine the selling price.
Job Costing 269
3. In a factory following the Job Costing Method, an abstract from the work-in-progress as at 30th
June was prepared as under: [SM]
Job No. Materials Direct Labour Labour Factory overheads
` Hours ` applied
115 1,325 400 hrs 800 640
118 810 250 hrs 500 400
120 765 237.5 hrs 475 380
`2,900 `1,775 `1,420
Materials used in July were as follows:
Material requisition no. Job No. Cost (`)
54 118 300
55 118 425
56 118 515
57 120 665
58 121 910
59 124 720
3,535
A summary of labour hours deployed during July is as under:
Job No. Number of hours
Shop A Shop B
115 25 25
118 90 30
120 75 10
121 65 --
124 20 10
275 75
Indirect labour: Waiting for material 20 10
Machine Breakdown 10 5
Idle Time 5 6
Overtime Premium 6 5
316 101
A shop credit slip was issued in July that material issued under Requisition No. 54 was returned
back to stores as being not suitable. A material transfer note issued in July indicated that material
issued under Requisition No. 55 for Job 118 was directed to Job 124.
The hourly rate in shop A per labour hour is `3 per hour while at shop B, it is `2 per hour. The
factory overhead is supplied at the same rate as in June. Job 115, 118 and 120 were completed
in July.
270 Cost and Management Accounting PW
You are asked to compute the factory cost of the completed jobs. It is the practice of the management
to put a 10% on the factory cost to cover administration and selling overheads and invoice the
job to the customer on a total cost plus 20% basis. What would be the invoice price of these jobs?
Ans. Invoice price = `3,946.80; `3,721.08; `3,598.32.
4. APFL Ltd. deals in plumbing materials and also provides plumbing services to its customers. On
12th August, 2022, APFL Ltd. received a job order for a students’ hostel to supply and fitting of
plumbing materials. The work is to be done on the basis of specification provided by the hostel
owner. Hostel will be inaugurated on 5th September, 2022 and the work is to be completed by 3rd
September, 2022. Following are the details related with the job work: [SM, MTP Nov 2019]
Direct Materials
APFL Ltd. uses weighted average method for the pricing of materials issues.
Opening stock of materials as on 12th August 2022:
15mm GI Pipe, 12 units of (15 feet size) @ `600 each
20mm GI Pipe, 10 units of (15 feet size) @ `660 each
Other fitting materials, 60 units @ `26 each
Stainless Steel Faucet, 6 units @ `204 each
Valve, 8 units @ `404 each
Purchases:
On 16th August 2022:
20mm GI Pipe, 30 units of (15 feet size) @ `610 each
10 units of Valve @ `402 each
On 18th August 2022:
Other fitting materials, 150 units @ `28 each
Stainless Steel Faucet, 15 units @ `209 each
On 27th August 2022:
15mm GI Pipe, 35 units of (15 feet size) @ `628 each
20mm GI Pipe, 20 units of (15 feet size) @ `660 each
Valve, 14 units @ `424 each
Issues for the hostel job:
On 12th August 2022:
20mm GI Pipe, 2 units of (15 feet size)
Other fitting materials, 18 units
On 17th August 2022:
15mm GI Pipe, 8 units of (15 feet size)
Other fitting materials, 30 units
On 28th August 2022:
20mm GI Pipe, 2 units of (15 feet size)
15mm GI Pipe, 10 units of (15 feet size)
Other fitting materials, 34 units
Valve, 6 units
Job Costing 271
On 30th August 2022:
Other fitting materials, 60 units
Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ `50 per hour (includes 12 hours overtime)
Helper: 192 hours @ `35 per hour (includes 24 hours overtime)
Overtimes are paid at 1.5 times of the normal wage rate.
Overheads:
Overheads are applied @ `13 per labour hour.
Pricing policy:
It is company’s policy to price all orders based on achieving a profit margin of 25% on sales price.
You are required to
(a) Calculate the total cost of the job.
(b) Calculate the price to be charged from the customer
Ans. (a) `44,367.95; (b) `59,157.27.
5. Ispat Engineers Limited (IEL) undertook a plant manufacturing work for a client. It will charge
a profit mark up of 20% on the full cost of the jobs. The following are the information related to
the job: [SM, RTP Nov 2019]
Direct materials utilized – `1,87,00,000
Direct labour utilized – 2,400 hours at `80 per hour
Budgeted production overheads are `48,00,000 for the period and are recovered on the basis of
24,000 labour hours.
Budgeted selling and administration overheads are `18,00,000 for the period and recovered on
the basis of total budgeted total production cost of `36,00,00,000.
Required to calculate the price to be charged for the job.
Ans. `2,33,62,632.
PRACTICE QUESTIONS
6. A factory uses job costing system. The following data are obtained from its books for the year
ended 31st March, 2020: [RTP May 2020]
Amount (`)
Direct materials 18,00,000
Direct wages 15,00,000
Selling and distribution overheads 10,50,000
Administration overheads 8,40,000
Factory overheads 9,00,000
Profit 12,18,000
272 Cost and Management Accounting PW
(i) PREPARE a Job Cost sheet indicating the Prime Cost, Cost of Production, Cost of sales and the
Sales value.
(ii) In 2019-20, the factory received an order for a job. It is estimated that direct materials
required will be `4,80,000 and direct labour will cost `3,00,000. DETERMINE what should
be the price for the job if 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 overheads is
recovered as percentage of wages paid, whereas, other overheads as a percentage of cost of
production, based on cost of rates prevailing in the previous year.
Ans. (i) Sales = `73,08,000; (ii) Sales = `17,13,600.
7. A company has been asked to quote for a job. The company aims to make a net profit of 30% on
sales. The estimated cost for the job is as follows: [RTP Nov 2018]
Direct materials 10 kg @ `10 per kg
Direct labour 20 hours @ `5 per hour
Variable production overheads are recovered at the rate of `2 per labour hour.
Fixed production overheads for the company are budgeted to be `1,00,000 each year and are
recovered on the basis of labour hours.
There are 10,000 budgeted labour hours each year. Other costs in relation to selling, distribution
and administration are recovered at the rate of `50 per job.
Determine quote for the job by the company.
Ans. `700.
SOLUTION OF PRACTICE QUESTIONS
6.
Statement of Cost and Profit
Particulars Amount (`)
Direct material 18,00,000
Add: Direct wages 15,00,000
Prime cost 33,00,000
Add: Factory overhead 9,00,000
GFC/NFC/COP/COGS 42,00,000
Add: Administration overhead 8,40,000
Add: Selling overhead 10,50,000
Cost of Sales 60,90,000
Add: Profit 12,18,000
Sales 73,08,000
Job Costing 273
Calculation of Recovery Rates
9,00,000
Factory overheads as % of direct wages = × 100 = 60% of direct wags
15, ,00000
8,40,000
Administration overheads as % of NFC = × 100 = 20% of NFC
42,00,000
10,50,000 15%
Selling overheads as % of NFC = × 100 = 28.75% of NFC
42,00,000
12,18,000
Profit as % of Cost of sales = × 100 = 20% of Cost of sales
60,90,000
Statement of calculation of selling price of Job
Particulars Amount (`)
Direct Material 4,80,000
Direct wages 3,00,000
Prime Cost 7,80,000
Add: Factory overheads (60% × 3,00,000) 1,80,000
GFC/NFC/COP/COGS 9,60,000
Add: Administration overheads (20% × 9,60,000) 1,92,000
Add: Selling overheads (28.75% × 9,60,000) 2,76,000
Cost of sales 14,28,000
Add: Profit (20% × 14,28,000) 2,85,600
Sales 17,13,600
7.
Determination of quotation price for the job
Particulars `
Direct material (10 kg × `10) 100
Direct labour (20 hours × `5) 100
Prime cost 200
Variable production overhead (20 hrs. × `2) 40
Fixed overhead 200
Other costs 50
Total cost 490
Profit 210
Sales value (490 70%) 700
274 Cost and Management Accounting PW
