Job costing

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

Costing under three different method

Actual costing Normal costing Standard costing

Costing system Actual costing

Production cost 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?

Normal product costing and standard costing are preferable

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 Since monthly productivity may vary due to holiday periods and seasonal variation, actual overhead is fluctuating and cannot reflect normal production conditions
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Flow chart indirect direct Delivery of materials to job Work

indirect direct Payment of wages to workers

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

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
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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

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Example
Refer to textbook P.198

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Job Account
Job 682 Bal b/f 2310 Job 683 a/c material transfer Material return Cost of sales 900 1600 14090 16590

Materials 9780 Wages 3000 Factory overhead (3000*50%) 1500 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

900 1600 14090

14880

14880
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Job 684 Materials 7900 Wages 2500 Factory overhead (2500*50%) 1250 Job 683 a/c material transfer Cost of sales 500 11150

11650 Job 685 Materials 8840 Material return Wages 2500 Factory overhead (2500*50%) 1250 Cost of sales 12590

11650

340 12250 12590

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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

2976 17586 24000 6144

Job 684 7400 2500 1250 11150

2230 13380 16000 2620

Job 685 8500 2500 1250 12250

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Control Accounts
Store ledger control account Bal b/f Cost ledger control (purchase) WIP control (material return to store) 8400 31000 WIP control (issue direct material 34000 Factory O/H control (issue indirect Material 3000 Bal c/f 4340 41340

1940
41340

Wages control account Cost ledger control ((wages paid) (12000+1000) 13000 WIP control (direct labour) Factory O/H control ( indirect Labour) 12000 1000

54310

54310

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Actual overhead Store ledger control (indirect) Wages control (indirect) Cost ledger control - Factory indirect exp. 3000 1000
2600 6600

Estimated overhead absorbed Factory overhead control account WIP control (12000*50%) 6000

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

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Actual overhead Cost ledger control (actual) 1000

Over-absorbed overhead

Estimated overhead absorbed Admin & marketing overhead control account

7950
74 8024

Cost of sales (2818+2976+2230)

8024

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

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Cost of Sales WIP control Admin & marketing O/H 40120 Costing profit and loss 8024 481444 48144 48144

Costing profit and loss Cost of sales Under-absorbed overhead

Cost ledger control net profit

48144 526
12330 61000

Cost ledger control sales

61000

61000

Cost ledger control account Costing profit and loss - sales Bal c/d (12250 + 4340) 61000 16590 Bal b/f Store ledger control Wages control Factory overhead control Admin & Marketing O/H control Consolidated profit and loss 10710 31000 13000 2600 7950 12330
18 77590

77590