job costing

Topics: Cost, Costs, Manufacturing Pages: 37 (1943 words) Published: March 12, 2015
JOB COSTING

JOB COSTING

Cost object is a unit or multiple units of a distinct product or service called a job.
Product or service is
A single unit such as:
1.Specialised machine done at Hitachi.
2.A construction project managed by L & T.
3.Advertising campaign produced by Saatchi and Saatchi.
Multiple identical unit such as:
1.Agni missile for Ministry of Defense manufactured by HAL.

JOB COSTING
SERVICE
SECTOR

JOB
COSTING

MERCHANDISING
SECTOR

- Audit engagements done - Special promotion of
by PWC.
new products by
- Consulting engagements Shopper’s Stop.
done by McKinsey & Co.
-Advertising campaigns run
by Ogilvy and Mather.
- Movies produced by R K
Movies.

MANUFACTURING
SECTOR

-Assembly of
individual aircrafts at
Boeing.
- Construction of ships
at Mazgaon Dock

JOB COSTING – DECISION MAKING PROCESS

1. Identify the problems and uncertainties – What it will cost to complete the job and the prices that its competitors are likely to bid.
2. Obtain information – Is the job consistent with the companies strategy.
3. Make predictions about the future – Do the employees have requisite skill sets, Likelihood of the cost overruns.
4. Make decisions by choosing among alternatives – Place the bid by taking into account likely bids of competitors, risks, qualitative factors.
5. Implement the decision, evaluate performance and learn.

JOB COSTING – APPROACH

1. Identify the job that is chosen as the cost object.
2. Identify the direct cost of the job.
3. Select the cost allocation bases to use for allocating indirect costs to the job.
4. Identify the indirect costs associated with each cost allocation base.
5. Compute the rate per unit of each cost allocation base used to allocate indirect costs to the job.
6. Compute the indirect cost allocated to the job.
7. Compute the total cost of the job by allocating the direct cost and indirect cost.

JOB COSTING - ILLUSTRATION

ILLUSTRATION
Heavy engineering corporation manufactures and installs specialized machinery for paper making industry. It receives a request to bid for manufacturing and installing a new paper making machine for Western pulp and paper company.

DECISION MAKING PROCESS
1. How much to bid for WPP job. What it will cost to complete the job and the prices that its competitors are likely to bid.
2. Obtain information – Whether WPP job is consistent with HEC’s strategy. Will HEC be able to develop a competitive advantage over its competitors. 3. Make predictions about the future – Do the engineers and employees working on the WPP job have the necessary skills and technical competence. HEC’s managers should seek the most relevant information when making their judgments. 4. Make decisions by choosing among alternatives – HEC bids Rs 1,50,000 for WPP job. This includes cost of Rs 1,00,000 and mark up of Rs 50,000. it has placed the bid by taking into account likely bids of competitors, risks, qualitative factors. 5. HEC wins the bid, as work on WPP job is on, it keeps a careful track of all costs to facilitate comparison and evaluate how well they did on the WPP job.

JOB COSTING – STEPS
1. Identify the job that is chosen as the cost object.
Cost object is Job WPP 298- Manufacturing paper making machine HEC’s managers gather information of cost through source documents. The main source document is JOB COST RECORD.

JOB COSTING – STEPS
JOB COST RECORD
JOB NO
Date started

WPP 298
01.10.2010

COSTUMER Western Pulp & Paper
Date completed 31.10.2010

DIRECT MATERIALS
Date received Material Requisition No
10.10.2010
2010:198
15.10.2010
2010:199

Part No
468A
267F

Quantity used
8
12

Unit cost
140
630

Total cost
1,120
7,560
XX
46,400

DIRECT LABOUR
Period covered Labour time record No
Oct 10-17
LT 232
Oct 10-17
LT 247

Employee No
551-89
287-90

Hours used
25
5

Hour rate
180
190

Total cost
4,500
950
XX
14,000

MANUFACTURING OVERHEAD...
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