COSTING - Job Costing

JOB COSTING

Job-costing is the system of costing used to find out the cost of non-standing jobs. These jobs are generally made according to customer’s specifications. It is followed in business connected with printing, binding, repairing machine tool manufacturing, etc. In such concerns, it is necessary to keep a separate record of each job from the time the work on the job begins till is completed. A separate job card or cost sheet is maintained for each job or product in which all expenses of materials, labour, over-heads are recorded and cost of completing a job or manufacturing a product is found. The method of ascertainment or estimation of costs is similar to that of unit costing.

While preparing the job cost sheet, in the absence of specific information, quotation for a job must absorb factory over-heads as a percentage of direct wages. If different departments are involved, over-head absorption rates must be separately calculated for each department, office, selling and distribution over-heads must be absorbed as a percentage of factory cost.

Fixed expenses are spread over normal; production or total number of hours available for work, as they are incurred irrespective of whether or not production activity is carried out. Actual output or actual hours are not considered.

PROFORMA OF JOB COST SHEET

Job cost sheet of ___________ for the period ended ___________

Particulars	Rs.	Rs.	Cost per unit (Rs.)
Direct materials consumed
Opening stock of raw material	xxx
Add: purchase of raw materials	xxx
Add: Carriage on purchases	xxx
	xxx
Less: C/stock of raw materials	xxx	xxx	xxx
Direct wages		xxx	xxx
Direct expenses		xxx	xxx
Prime cost		xxx	xxx
Add: factory over-heads		xxx
		xxx
Less: sale of scrap		xxx
		xxx
Add: work in progress (beginning)		xxx
		xxx
Less: work in progress (closing)		xxx
works cost or factory cost		xxx	xxx
Add: Administration over-heads		xxx
Cost of production of goods sold		xxx
Add: opening stock of finished goods		xxx
		xxx
Less: closing stock of finished goods		xxx
Cost of goods sold		xxx	xxx
Add: selling and distribution over-heads		xxx
Cost of sales or total cost		xxx	xxx
Net Profit		xxx	xxx
Sales		xxx	xxx

Cost sheet or a statement of cost.

A cost sheet or a statement of cost is a statement that is prepared to present information regarding the various elements of cost incurred in production during a defined period of time. The cost sheet is generally prepared at short intervals (weekly or monthly) and presents the total cost as well as cost per unit of products manufactured during the period.

The cost sheet does not have a statutory format. It is not part of the accounting system. The purpose of cost sheet is to present the elements of cost. Cost sheet may have information pertaining to the previous year in an additional column. Alternatively, standard costs may also be provided.

Cost sheet shows the breakup of total cost into various elements, sales value of goods and profit earned (or loss incurred) during a period.

Treatment of certain items in preparation of cost sheet.

1. Expenses not included in cost sheet:-

Cost sheet includes only such expenses that are a charge against profit. Expenditure incurred towards servicing of debt (interest payments), acquisition of assets (capital expenditure) appropriation of profits and payments representing distribution of profits are not included in the preparation cost sheet.

The following is the proforma of cost sheet:

Job cost sheet of ___________ for the period ended ___________

Particulars	Rs.	Rs.	Cost per unit (Rs.)
Direct materials consumed
Opening stock of raw material	xxx
Add: purchase of raw materials	xxx
Add: Carriage on purchases	xxx
	xxx
Less: C/stock of raw materials	xxx	xxx	xxx
Direct wages		xxx	xxx
Direct expenses		xxx	xxx
Prime cost		xxx	xxx
Add: factory over-heads		xxx
		xxx
Less: sale of scrap		xxx
		xxx
Add: work in progress (beginning)		xxx
		xxx
Less: work in progress (closing)		xxx
works cost or factory cost		xxx	xxx
Add: Administration over-heads		xxx
Cost of production of goods sold		xxx
Add: opening stock of finished goods		xxx
		xxx
Less: closing stock of finished goods		xxx
Cost of goods sold		xxx	xxx
Add: selling and distribution over- heads		xxx
Cost of sales or total cost		xxx	xxx
Net Profit		xxx	xxx
Sales		xxx	xxx

Interest on capital, income-tax paid, advance payment of income-tax, sales tax paid, provision for doubtful debts provision for discount on debtors, expenses incurred for raising capital such as underwriting commission, and brokerage, goodwill/preliminary expenses written off, abnormal losses, transfer to sinking fund, profit or loss on sale of an asset, debenture interest, discount received, dividends received, etc.

Cash discount and bad debts:-

There is a difference of opinion in the treatment of cash discount allowed and bad debts. Bad debts in the cost of taking a credit risk. However, some other experts opine that these expenses are a normal part of selling efforts by any business and hence must be considered as selling and distribution over-heads.

Incomes not included in cost sheet:-

The cost sheet does not include any incomes. The only exceptions are sales and sale of scrap. For Ex.:- interest income, dividend income, rent, transfer fees, etc., are not included in cost sheet.

Scrap:

Scrap is incidental residue. Scrap can be of direct material itself (remnants of cost, wood pieces or it may refer to the remains after the production process. In the first case, the amount realized from the sale of such scrapped material must be deducted from the cost of direct material consumed. In the second case, the value of scrap must be deducted from the total of factory over-heads.

Defectives: -

Defectives are finished or semi-finished products that have a defect in them. Such defects need to be rectified. This process is done in the factory. It is quite normal to have defectives. If the cost of rectification is normal, then such costs are taken as part of factory over-heads. However, if the number of defectives is very large, then such abnormal expenses are not taken in cost sheet.

Drawing office: -

It is a part of factory where drawings, designs etc., are made. Expenses on drawings made specifically for a product are direct expenses. However, all other expenditure is part of factory over-head. Unless specifically mentioned, it must be treated as factory over-head.

Calculation of cost per unit:

The following steps must be followed:

All elements of cost, starting from direct materials consumed to cost of production, must be divided by number of units produced.

The value of opening stock and closing stock of finished goods should not be divided with any figure. Hence, cost of production per unit and cost of goods sold per unit will be same. Selling and distribution over-heads should be divided by number of units sold.

Work-In-Progress:

The value of work-in-progress at the end of the period for which the cost sheet is being prepared is added to the total of factory over-heads. The closing value is deducted from the total. The net figure goes to the outer column of cost sheet. If work-in-progress is valued at prime cost, then the opening value of work-in-progress is added to the total of Direct Material, Direct Wages and Direct Expenses. The closing value is deducted from the same. The final figure obtained is the ‘price cost’.

Value of closing stock:-

If the value of closing stock of finished goods is not available, it can be found from the following formula:

Value of c/stock = closing stock (in units) x cost of production per unit.

Apportionment of expenses:

If an expense has been incurred jointly towards two or more heads, it must be apportioned amongst such heads on a reasonable basis. The salary of General Manager will have to be apportioned amongst factory, office and selling and Distribution over-heads in the ratio of time spent by him on the issues pertaining to the three heads.

Outstanding Expenses:

In preparation of cost sheet, even outstanding expenses are included.

For ex.: If direct wages paid are Rs. 10000 and direct wages outstanding are Rs.1000, then the cost sheet will show a cost of Rs.11000 towards Direct expenses.

Subsidy:-

Subsidy is a concession given by the government. The organization receiving subsidy can afford to reduce its desired selling price of its products to the extent of subsidy received.

Dual pricing:

If the industry is subject to dual pricing, the open market price must recover the loss in revenue on account of supplying part of the goods at levy price.

Percentage of some other expenses:

If the information is not provided for number of units, factory overheads are estimated and charged on the basis of its percentage to direct wages in the previous year. Similarly, administration, selling and distribution overheads are changed on the basis of their percentage to works cost in the previous year.

Fixed and variable costs:-

Variable expenses are expenses that vary in direct proportion to number of units produced. Fixed expenses remain fixed in amount irrespective of the number of units produced.