Job Costing

Job Costing Notes

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

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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.

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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).

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4. Job‑Costing Methods

Method	Direct Costs	Indirect Costs	Typical Use
Normal Job Costing	Actual	Budgeted rate (predetermined)	Timely decision making
Actual Job Costing	Actual	Actual	Final accounting reconciliation
Standard Job Costing	Budgeted/Standard	Budgeted/Standard	Quoting & planning

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.

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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

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