MANAGERIAL ACCOUNTING JOB and BATCH COSTING.pptx

Managerial Accounting - Job and Batch Costing

1. Managerial Accounting BBA 2023

2. JOB COSTING Job order costing is that form of specific order costing which applies where work is undertaken to customers’ specific requirements and each order is of comparatively short duration – ICMA Costs are accumulated according to jobs, contracts, products, or work orders. Each job is treated as a separate entity for the purpose of ascertaining costs. A job may be a product, unit, batch, sales order, project, contract, service, specific programme or any other cost objective that is clearly distinguishable and unique in terms of materials and other services used. No two orders are necessarily alike, and all orders do not pass through the same manufacturing process. 2

3. Who uses job costing? Marketing and advertising agencies Construction companies Consulting firms Health care organizations Film producing companies Printing press Accounting firms Law firms Custom-made equipment manufacturing companies like BHEL (It manufactures turbines, transformers, boilers etc.)

4. Accounting Procedure 4 Accounting for material: Cost of direct materials is traced to a specific job. Accounting for labour : Employee may work on same job or multiple jobs. Time tickets provide information of a particular job. Labour cost = hours spent * rate Accounting for overhead: O/Hs are charged based on rates or percentages. Price of a job: It is arrived by adding the desired percentage of profit to the total cost of the job.

5. Q.) Following information has been extracted from costing records of Shree Ganesh Engineering Works in respect of Job No. 101 Materials: Rs 5,800 Wages: Department A: 100 hours @ Rs 5 per hour Department B: 200 hours @ Rs 3 per hour Overheads for the two departments are estimated as follows: Variable Overheads: Department A: Rs 10,000 for 5,000 direct labour hours Department B: Rs 30,000 for 10,000 direct labour hours Fixed Overheads: Estimated at Rs. 50,000 for 50,000 normal working hours. Required: Calculate the cost of Job No. 101 and calculate the price to be charged so as to give a profit of 20% on selling price.

6. Particulars Rs Rs Direct Materials 5,800 Wages: Department A – 100 hrs @ Rs 5 per hour 500 Department B – 200 hrs @ Rs 3 per hour 600 1,100 Prime Cost 6,900 Variable Overheads: Department A – 100 hrs @ Rs 2 per hour 200 Department B – 200 hrs @ Rs 3 per hour 600 800 Fixed Overheads for 300 hrs @ Re 1 per hour 300 Total Cost 8,000 Profit @ 20% on Selling Price (means 25% on cost) 2,000 Selling Price 10,000

7. Q.) A factory uses a job costing system. The following cost data are available from the books for the year ended 31st March, 20X1: Direct material : Rs. 9,00,000 Direct wages : Rs. 7,50,000 Profit : Rs. 6,09,000 Selling and distribution overheads : Rs. 5,25,000 Administrative overheads : Rs. 4,20,000 Factory overheads : Rs. 4,50,000 (a) Prepare a Cost Sheet indicating the prime cost, works cost, production cost, cost of sales, and sales value. (b) In 20X1-20X2, the factory had received an order for a number of jobs. It is estimated that the direct materials would be Rs. 12,00,000 and direct labour would cost Rs. 7,50,000. What would be the price for these jobs if the factory intends to earn the same rate of profit on sales, assuming that the selling and distribution overhead has gone up by 15%? The factory recovers factory overhead as a percentage of direct wages and administrative and selling and distribution overheads as a percentage of works cost, based on the cost rates prevalent in the previous year.

8. (a) Cost Sheet For the jobs carried out during the year ending 31st March, 20X1 Particulars Rs. A. Direct material 9,00,000 B. Direct wages 7,50,000 C. Prime cost [A + B] 16,50,000 D. Add: Factory overheads 4,50,000 E. Works cost [C + D] 21,00,000 F. Add: Administrative overheads 4,20,000 G. Production cost [E + F] 25,20,000 H. Add: Selling and distribution overheads 5,25,000 I. Cost of Sales [G + H] 30,45,000 J. Add: Profit 6,09,000 K. Sales value [I + J] 36,54,000

9. (b) Cost Sheet For the jobs to be carried out during the year 20X1-20X2 Particulars Rs. A. Direct material 12,00,000 B. Direct labour 7,50,000 C. Prime cost [A + B] 19,50,000 D. Add: Factory overheads [60% of Rs 7,50,000] 4,50,000 E. Works cost [C + D] 24,00,000 F. Add: Administrative overheads [20% of Rs 24,00,000] 4,80,000 G. Production cost [E + F] 28,80,000 H. Add: Selling and distribution overheads 6,90,000 I. Total cost 35,70,000 J. Profit 7,14,000 K. Selling price 42,84,000

10. Batch costing It is that form of specific order costing under which each batch is treated as a cost unit and cost are accumulated and ascertained separately for each batch. It is modified form of job costing in which cost of each batch of production is calculated. Batch costing is used when production consists of limited repetition work and a definite number of articles are manufactured in each batch to be held in stock for sale to customers. It is commonly applied in pharmaceutical industry, readymade garments factories, cosmetics etc. Cost per unit is ascertained by dividing the total cost of a batch by a number of items produced in that particular batch.

11. Batch costing A salient feature of batch costing is the determination of the batch size. The size of the batch should neither be too large nor too small.

12. Batch costing Thus, based on a trade-off between benefits derived from setting up costs and the cost of carrying the inventory, an apt production level of the batch is determined

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17. Batch costing Annual demand is 10,000 Ordering cost is Rs 20 Holding cost is Rs 2.50

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