Job Costing

1. Job as a Cost Object

• Definition:
  A job is treated as a cost object.
  All costs related to that specific job are collected under its cost object.

• Job Cost Sheet:

  • Opened as soon as a customer gives a job.
  • Contains a unique job code, which may include:
    • Product code
    • Customer identifier
    • Period (start date)
    • Serial number

2. Collecting Direct Costs

1. Direct Materials

   • Requisition slip lists job number.
   • Cost accountant charges actual material cost to the job.

2. Direct Labor

   • Time sheets (from production manager or HR) list hours worked per job.
   • Cost accountant charges employee cost based on actual hours.

3. Machine Costs

   • Machine log book records job details and hours run.
   • Machine cost charged based on job-machine time.

4. Other Direct Expenses

   • e.g., travel expenses for technicians delivering finished product.

• Prime Cost = Sum of all direct material, direct labor & other direct expenses.

3. Collecting Indirect Costs

• Definition: Costs incurred commonly for multiple jobs during the period.

• Examples:

  • Production manager’s salary (supervises all jobs)
  • Factory rent, insurance, property taxes

• Cost Pools & Allocation:

  • Indirect costs are pooled (single or multiple pools).
  • Allocated to jobs using a chosen allocation base (e.g., machine‐hours, labor‐hours).

4. Job‑Costing Methods

4.1 Normal Job Costing

• Predetermined Overhead Rate
  Budgeted O/H Rate = Budgeted Indirect Cost / Budgeted Activity (e.g., machine‑hours)
• Example:
  • Budgeted indirect cost = ₹100,000
  • Budgeted machine‑hours = 200
  • Rate = ₹100,000 ÷ 200 = ₹500 per machine‑hour
• Advantage:
  • Compute job cost immediately upon completion.
• Disadvantage:
  • Possible under- or over‑applied overhead if actuals differ.

4.2 Actual Job Costing

• Indirect costs allocated using actual costs and actual activity.
• Advantage:
  • Eliminates under/over‑applied overhead variance.
• Disadvantage:
  • Job cost can only be computed after period end → delays decision making.

4.3 Standard Job Costing

• Both direct and indirect costs based on standard (budgeted) values.
• Used for planning, quoting, and tender submissions.

5. Garment Manufacturer Job‑Cost Sheet (Example)

• Job Details:

  • Customer
  • Start & completion dates
  • Job code
  • Description

• Cost Breakup:

  1. Direct Material Cost
     • Total = ₹120,000 for 300 sets → ₹400 per set
  2. Direct Labor & Other Direct
  3. Indirect Costs (4 categories):
     • Indirect material
     • Indirect labor
     • Factory overhead
     • Administrative overhead

• Total Cost per Set: ₹949

  • Conversion Cost = Total cost – Direct material = ₹949 – ₹400 = ₹549
  • Profit Mark‑Up = 60% of conversion cost = 0.60 × ₹549 = ₹329
  • Selling Price per Set = ₹949 + ₹329 = ₹1,278