Job costing 1 Job Costing n Job costing

Job costing 1

Job Costing n Job costing is a product costing method adopted by an enterprise that provides limited quantities of unique products n This kind of enterprise produces tailormade goods or services that conform to the specifications designed by customer n Costs can be determined separately for each job order 2

Costing under three different method n Actual costing n Normal costing n Standard costing 3

Costing system Production cost Actual costing Actual direct materials + Actual labour + Actual overhead Actual direct material + Actual direct labour + Applied overhead (I. e. Per-determined overhead rate * actual level of productivity) Standard direct material + standard direct labour + 4 applied overhead Normal costing Standard costing

Which one better? n Normal product costing and standard costing are preferable 5

Reasons Under actual costing, the product cost will be delayed until the end of the accounting period. However, the product cost should be obtained beforehand for setting selling price n Since monthly productivity may vary due to holiday periods and seasonal variation, actual overhead is fluctuating and cannot reflect normal production conditions n 6

Flow chart indirect Delivery of materials to job direct indirect Payment of wages to workers Work In Charging of applied overhead Costs to work in progress Progress sold Cost of sales 7

Accounting entries Dr. Store ledger control Cr. Cost ledger control To record the purchase of materials Dr. WIP (direct) Dr. manufacturing overhead (indirect) Cr. Store ledger control To record direct and indirect material issued Dr. wages control Cr. Cost ledger control To record wages paid Dr. WIP (direct) Dr. Manufacturing overhead (indirect) Cr. Wages control To record direct and indirect wages incurred 8

Accounting entries Dr. Manufacturing overhead Cr. Cost ledger control To record indirect expenses Dr. WIP Cr. manufacturing overhead To apply overhead using predetermined overhead absorption rate Dr. Cost of sales Cr. WIP control To record cost of sales of goods produced Dr. Cost of sales Cr. Other overhead To record other applied overhead charged to cost of sales 9

Accounting entries Dr. Costing Profit and loss Cr. Cost of sales Cr. Under-absorbed overheads /Dr. Over-absorbed overheads To transfer the balance of cost of sales and under- / overabsorbed overheads to profit and loss account Dr. Cost ledger control Cr. Costing Profit and loss To transfer the sale value of jobs completed 10

Example Refer to textbook P. 198 11

Job Account Job 682 Bal b/f 2310 Materials 9780 Wages 3000 Factory overhead (3000*50%) 1500 Job 683 a/c – material transfer Material return Cost of sales 16590 Job 683 Materials 7480 Job 683 a/c – material transfer Wages 4000 Material return Factory overhead (4000*50%) 2000 Cost of sales Job 682 a/c – material transfer 900 Job 684 a/c – Material transfer 500 14880 900 1600 14090 16590 900 1600 14090 14880 12

Job 684 Materials 7900 Wages 2500 Factory overhead (2500*50%) 1250 Job 683 a/c – material transfer Cost of sales 11650 Job 685 Materials 8840 Material return Wages 2500 Factory overhead (2500*50%) 1250 Cost of sales 12590 500 11150 11650 340 12250 12590 13

Job Cost Sheet 1260+9780 -900 -1600 Job 682 Materials 8540 3000+700 Wages 3700 Factory overhead 1850 1500+350 Factory cost 14090 Adm. Overhead (20%) 2818 Cost of sales 16908 Sales value 21000 Profit/ (Loss) 4092 Job 683 8880 4000 2000 14880 Job 684 7400 2500 1250 11150 2976 17586 24000 6144 2230 13380 16000 2620 Job 685 8500 2500 1250 12250 14

Control Accounts Store ledger control account Bal b/f 8400 1940 WIP control (issue direct material 34000 Factory O/H control (issue indirect Material 3000 Bal c/f 4340 Cost ledger control (purchase) WIP control (material return to store) 31000 41340 Wages control account Cost ledger control ((wages paid) (12000+1000) 13000 54310 WIP control (direct labour) Factory O/H control ( indirect Labour) 12000 1000 54310 15

Estimated overhead absorbed Actual overhead Factory overhead control account Store ledger control (indirect) Wages control (indirect) Cost ledger control - Factory indirect exp. 3000 1000 WIP control (12000*50%) 6000 2600 Under-absorbed overhead 600 6600 Work in progress control account Bal b/f Store ledger control (direct) Wages control (direct) Factory O/H (O/H absorbed) 2310 34000 12000 6000 54310 Store ledger control – return Cost of sales (14090+14880 +11150) Bal c/f 1940 40120 12250 54310 16

Estimated overhead absorbed Actual overhead Admin & marketing overhead control account Cost ledger control (actual) 1000 Over-absorbed overhead 7950 Cost of sales (2818+2976+2230) 8024 74 8024 Under - / Over- absorbed overhead control Factory overhead control - Under absorbed Admin & Marketing overhead 600 - Over absorbed Costing profit and loss 600 74 526 600 17

Cost of Sales WIP control Admin & marketing O/H 40120 Costing profit and loss 8024 48144 Costing profit and loss Cost of sales Under-absorbed overhead 48144 526 Cost ledger control – net profit Cost ledger control – sales 61000 12330 61000 Cost ledger control account Costing profit and loss - sales 61000 Bal c/d (12250 + 4340) 16590 77590 Bal b/f Store ledger control Wages control Factory overhead control Admin & Marketing O/H control 10710 31000 13000 2600 7950 Consolidated profit and loss 12330 18 77590