Job costing

JOB COSTING

Job costing is a specific order costing method which is applied where work is undertaken to customers’ special requirement, the work being smaller in size and shorter in duration.

Where job costing is used a job cost card or job cost sheet is prepared to record direct materials, direct labour hours and their associated costs as well as overhead costs for each individual work or job performed.

Job costing can be applied in motor repair shops, carpentry shops, building and construction industry, etc.

The proforma below is an example of a job cost sheet.

JOB COST SHEET: JOB ABC 25
	$	$
Direct Material Costs:
Material AA	X
Material BB	X	X
Direct Labour Costs
Production Dept. 1	X
Production Dept. 2	X	X
Direct Expenses		X
Prime Cost		X
Production Overhead:
Production Dept. 1	X
Production Dept. 2	X	X
Production Costs		X
Administration Overhead		X
Total Cost		X
Profit		X
Selling Price		X

Exercise 1

ABC Ltd uses job costing in ascertaining the cost of work undertaken for its clients. The following relates to Job A42

Direct material:

            Material XX                            400kg    @ $5 per kg

            Material B5                             600litres @ $2 per kg

Direct labour:

            Production department           20hours @ $500 per hour

            Finishing department              15hours @ $420 per hour

Hire of special machine                                          $2,200

Overheads are absorbed as follows:

            Production department:          60% of Direct labour cost

            Finishing department:             Direct labour hour rate of $7

It is the practice of the business to add a profit margin of 20% (on selling price) to all jobs.

You are required to prepare a job cost sheet to record the above data, showing prime cost, production cost and selling price.

Exercise 2

Bruno Enterprise uses job costing for charging clients. Two jobs were undertaken during week number 32. The following data relates to the jobs.

	Job A4	Job A5
Direct materials:
From store	400kg     @ $50	600litres  @ $30
From Job A4	-	50kg        @$50
From Job A5	150litres @ $30	-
To store	50kg	10litres
Direct labour:
Skilled	40hours  @ $120	30hours   @ $105
Unskilled	45hours  @ $50	42hours   @ $70
Production overhead	$8,000 per unit	$500 per labour hour
Profit	Mark up of 25%	Margin of 20%

You are required to prepare:

a.       A job cost sheet to record the data above

b.      An account for each job to record the cost of production

Exercise 3

Felipe Enterprise has three production department and two service department. The data below was for the business for the month of September 2009.

	Production Departments			Service Departments		Total
	Cutting	Lathing	Assembly	Administration	Maintenance
Overhead allocated ($)	80,000	50,000	75,000	45,000	36,000	286,000
Other overheads:
Depreciation of assets ($)						110,000
Rent and rates						98,000
Number of employees	10	12	13	15	5	55
Machine hours	5,000	8,000	6,000	-	-	19,000
Direct labour hours	10,000	2,000	6,000	-	-	18,000
Total direct material cost ($)	12,000	8,000	19,500	-	-	26,000
Total direct labour cost ($)	20,000	23,000	17,500	-	-	60,000
Capital value of assets ($)	35,000	50,000	45,000	-	-	130,000
Floor area occupied (m2)	200	300	200	400	250	1,350
Usage of service departments:
Administration (%)	30	40	28	-	2	100
Maintenance (%)	35	25	36	4	-	100

During the month of September Job A4 was undertaken with the following details:

        i.            Direct materials: Material JT 40 litres @ $50 per litre

                            Material VV 35kg @ $48 per kg

      ii.            Direct labour: Cutting 10 hours @ $25 per hour

                         Lathing 15 hours @ $12 per hour

                         Assembly 22 hour @ $18.

    iii.            14 machine hours were worked in the cutting department, 20 in the lathing department and 22 in the assembly department.

    iv.            Direct expenses: Hire of special trimming machine $1,500.

      v.            Production overheads are absorbed as follows:

Cutting: Machine hour rate;

Lathing: Prime cost percentage;

Assembly: Direct labour hour rate.

    vi.            The business adds a profit margin of 10% on all jobs.

  vii.            Selling overheads of 30% on production cost is charged to each job.

You are required to prepare a job cost card to record the above data, showing

a.       prime cost ,

b.      overhead cost,

c.       production cost,

d.      total cost and

e.       selling price.

Characteristics of Job Costing

The following are some of the features that distinguish job costing from the other costing methods:

1.      Work is undertaken to customer’s special order.

2.      The work done is smaller in size.

3.      Each job is normally distinct from others.

4.      Jobs take shorter duration to complete.

5.      Cost of one job cannot be transferred to another, except where there is a transfer of surplus materials.

6.      Most costs incurred are direct.

7.      Job is normally undertaken in the premises of the producer.