ICAI Notes: Job Costing | Cost and Management Accounting for CA Intermediate PDF Download

 Page 1


    
 
 
CHAPTER 
9 
 
 
LEARNING OUTCOMES 
 
JOB COSTING 
 
? Describe Job Costing methods. 
? Explain the accounting entries for cost elements under both 
the methods. 
? Determining cost for a job.  
 
Methods of Costing
Job Costing
Specific Order Costing
CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
Page 2


    
 
 
CHAPTER 
9 
 
 
LEARNING OUTCOMES 
 
JOB COSTING 
 
? Describe Job Costing methods. 
? Explain the accounting entries for cost elements under both 
the methods. 
? Determining cost for a job.  
 
Methods of Costing
Job Costing
Specific Order Costing
CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
COST AND MANAGEMENT ACCOUNTING  9.2 
1. JOB COSTING  
1.1 Meaning of Job Costing 
CIMA London defines Job Costing as “the category of basic costing methods 
which is applicable where the work consists of separate contracts, jobs or 
batches, each of which is authorised by specific order or contract.” According 
to this method, costs are collected and accumulated according to jobs, contracts, 
products or work orders. Each job or unit of production is treated as a separate 
entity for the purpose of costing. Job Costing is carried out for the purpose of 
ascertaining cost of each job and takes into account the cost of materials, 
employees and overhead etc. The job costing method is also applicable to 
industries in which production is carried out in batches. Batch production 
basically is of the same character as the job order production, the difference 
being mainly one in the size of different orders.  
1.2 Principles of Job Costing 
The job costing method may be regarded as the principal method of costing since 
the basic object and purpose of all costing is to: 
• Analysis and ascertainment of cost of each unit of production 
• Control and regulate cost 
• Determine the profitability 
The basic principles enunciated for the job costing method are valid essentially for 
all types of industry. For example, printing; furniture; hardware; ship-building; heavy 
machinery; interior decoration, repairs and other similar work. 
1.3  Process of Job Costing 
• Prepare a separate cost sheet for each job 
• Disclose cost of materials issued for the job 
• Employee costs incurred (on the basis of bill of material and time cards 
respectively) 
• When job is completed, overhead charges are added for ascertaining total 
expenditure  
© The Institute of Chartered Accountants of India
Page 3


    
 
 
CHAPTER 
9 
 
 
LEARNING OUTCOMES 
 
JOB COSTING 
 
? Describe Job Costing methods. 
? Explain the accounting entries for cost elements under both 
the methods. 
? Determining cost for a job.  
 
Methods of Costing
Job Costing
Specific Order Costing
CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
COST AND MANAGEMENT ACCOUNTING  9.2 
1. JOB COSTING  
1.1 Meaning of Job Costing 
CIMA London defines Job Costing as “the category of basic costing methods 
which is applicable where the work consists of separate contracts, jobs or 
batches, each of which is authorised by specific order or contract.” According 
to this method, costs are collected and accumulated according to jobs, contracts, 
products or work orders. Each job or unit of production is treated as a separate 
entity for the purpose of costing. Job Costing is carried out for the purpose of 
ascertaining cost of each job and takes into account the cost of materials, 
employees and overhead etc. The job costing method is also applicable to 
industries in which production is carried out in batches. Batch production 
basically is of the same character as the job order production, the difference 
being mainly one in the size of different orders.  
1.2 Principles of Job Costing 
The job costing method may be regarded as the principal method of costing since 
the basic object and purpose of all costing is to: 
• Analysis and ascertainment of cost of each unit of production 
• Control and regulate cost 
• Determine the profitability 
The basic principles enunciated for the job costing method are valid essentially for 
all types of industry. For example, printing; furniture; hardware; ship-building; heavy 
machinery; interior decoration, repairs and other similar work. 
1.3  Process of Job Costing 
• Prepare a separate cost sheet for each job 
• Disclose cost of materials issued for the job 
• Employee costs incurred (on the basis of bill of material and time cards 
respectively) 
• When job is completed, overhead charges are added for ascertaining total 
expenditure  
© The Institute of Chartered Accountants of India
JOB COSTING 
 
    
 9.3 
1.4 Suitability of Job Costing 
• When jobs are executed for different customers according to their 
specifications. 
• when no two orders are alike and each order/job needs special treatment. 
• Where the work-in-progress differs from period to period on the basis of the 
number of jobs in hand. 
2. JOB COST CARD/ SHEET 
Each job order is asymmetrical to other due to specific and customised 
requirements. To ascertain cost of a particular job, it is necessary to record all the 
expenditure related with a job separately. For this purpose, Job Cost card is used. 
Job cost card is a cost sheet, where the quantity of materials issued, hours spent by 
different class of employees, amount of other expenses and share of overheads are 
recorded. This is helpful in knowing the total cost, profitability etc. of a job. The
following is an illustrative format of Job Cost card/ sheet. 
Format of Job Cost Sheet:  
JOB COST SHEET 
Description: _______________________ 
Blue Print No.: ______________________ 
Material No.: _______________________ 
Reference No.: ______________________ 
Job No.: ________________________ 
Quantity: _______________________ 
Date of delivery: __________________ 
Date commenced: _________________ 
Date finished: _____________________
Date Reference Details Material Labour Overhead 
   
 
 
 
 
 
Total 
 
   
   
© The Institute of Chartered Accountants of India
Page 4


    
 
 
CHAPTER 
9 
 
 
LEARNING OUTCOMES 
 
JOB COSTING 
 
? Describe Job Costing methods. 
? Explain the accounting entries for cost elements under both 
the methods. 
? Determining cost for a job.  
 
Methods of Costing
Job Costing
Specific Order Costing
CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
COST AND MANAGEMENT ACCOUNTING  9.2 
1. JOB COSTING  
1.1 Meaning of Job Costing 
CIMA London defines Job Costing as “the category of basic costing methods 
which is applicable where the work consists of separate contracts, jobs or 
batches, each of which is authorised by specific order or contract.” According 
to this method, costs are collected and accumulated according to jobs, contracts, 
products or work orders. Each job or unit of production is treated as a separate 
entity for the purpose of costing. Job Costing is carried out for the purpose of 
ascertaining cost of each job and takes into account the cost of materials, 
employees and overhead etc. The job costing method is also applicable to 
industries in which production is carried out in batches. Batch production 
basically is of the same character as the job order production, the difference 
being mainly one in the size of different orders.  
1.2 Principles of Job Costing 
The job costing method may be regarded as the principal method of costing since 
the basic object and purpose of all costing is to: 
• Analysis and ascertainment of cost of each unit of production 
• Control and regulate cost 
• Determine the profitability 
The basic principles enunciated for the job costing method are valid essentially for 
all types of industry. For example, printing; furniture; hardware; ship-building; heavy 
machinery; interior decoration, repairs and other similar work. 
1.3  Process of Job Costing 
• Prepare a separate cost sheet for each job 
• Disclose cost of materials issued for the job 
• Employee costs incurred (on the basis of bill of material and time cards 
respectively) 
• When job is completed, overhead charges are added for ascertaining total 
expenditure  
© The Institute of Chartered Accountants of India
JOB COSTING 
 
    
 9.3 
1.4 Suitability of Job Costing 
• When jobs are executed for different customers according to their 
specifications. 
• when no two orders are alike and each order/job needs special treatment. 
• Where the work-in-progress differs from period to period on the basis of the 
number of jobs in hand. 
2. JOB COST CARD/ SHEET 
Each job order is asymmetrical to other due to specific and customised 
requirements. To ascertain cost of a particular job, it is necessary to record all the 
expenditure related with a job separately. For this purpose, Job Cost card is used. 
Job cost card is a cost sheet, where the quantity of materials issued, hours spent by 
different class of employees, amount of other expenses and share of overheads are 
recorded. This is helpful in knowing the total cost, profitability etc. of a job. The
following is an illustrative format of Job Cost card/ sheet. 
Format of Job Cost Sheet:  
JOB COST SHEET 
Description: _______________________ 
Blue Print No.: ______________________ 
Material No.: _______________________ 
Reference No.: ______________________ 
Job No.: ________________________ 
Quantity: _______________________ 
Date of delivery: __________________ 
Date commenced: _________________ 
Date finished: _____________________
Date Reference Details Material Labour Overhead 
   
 
 
 
 
 
Total 
 
   
   
© The Institute of Chartered Accountants of India
COST AND MANAGEMENT ACCOUNTING  9.4 
Summary of costs Estimated 
(`) 
Actual  
(`) 
 
For the job __________________ 
Units produced ______________ 
Cost/unit ___________________ 
Remarks ____________________ 
Prepared by: ________________ 
Checked by: _________________ 
Direct material cost 
Direct wages
Production overhead 
PRODUCTION COST  
Administration and 
Selling & Distribution 
Overheads 
 
TOTAL COST 
PROFIT/LOSS 
SELLING PRICE 
 
 
 
  
 
 
 
  
  
3. COLLECTION OF COSTS FOR A JOB   
3.1 Collection of Materials Cost 
An essential requirement of job cost accounting is that direct materials and their 
cost must be traced to and identified with specific job or work order. This 
segregation of materials cost by jobs or work order is brought by the use of 
separate stores requisitions for each job or work order. Where a bill of material is 
prepared, it provides the basis for the preparation of these stores requisitions. But 
when the entire quantity of materials specified in the bill of materials is drawn in 
one lot or in installments, the bill itself could be made to serve as a substitute for 
the stores requisition. 
After the materials have been issued and the stores requisitions have been priced, 
it is usual to enter the value of the stores requisition in a material abstract or 
analysis book. It serves to analyse and collect the cost of all direct materials 
according to job or work orders and departmental standing orders or expense code 
numbers. From the abstract book, the summary of materials cost of each job is 
posted to individual job cost sheets or cards in the Work-in-Progress ledger. 
The postings are usually made weekly or monthly. Similarly, at periodic intervals, 
from the material abstract books, summary cost of indirect material is posted to 
© The Institute of Chartered Accountants of India
Page 5


    
 
 
CHAPTER 
9 
 
 
LEARNING OUTCOMES 
 
JOB COSTING 
 
? Describe Job Costing methods. 
? Explain the accounting entries for cost elements under both 
the methods. 
? Determining cost for a job.  
 
Methods of Costing
Job Costing
Specific Order Costing
CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
COST AND MANAGEMENT ACCOUNTING  9.2 
1. JOB COSTING  
1.1 Meaning of Job Costing 
CIMA London defines Job Costing as “the category of basic costing methods 
which is applicable where the work consists of separate contracts, jobs or 
batches, each of which is authorised by specific order or contract.” According 
to this method, costs are collected and accumulated according to jobs, contracts, 
products or work orders. Each job or unit of production is treated as a separate 
entity for the purpose of costing. Job Costing is carried out for the purpose of 
ascertaining cost of each job and takes into account the cost of materials, 
employees and overhead etc. The job costing method is also applicable to 
industries in which production is carried out in batches. Batch production 
basically is of the same character as the job order production, the difference 
being mainly one in the size of different orders.  
1.2 Principles of Job Costing 
The job costing method may be regarded as the principal method of costing since 
the basic object and purpose of all costing is to: 
• Analysis and ascertainment of cost of each unit of production 
• Control and regulate cost 
• Determine the profitability 
The basic principles enunciated for the job costing method are valid essentially for 
all types of industry. For example, printing; furniture; hardware; ship-building; heavy 
machinery; interior decoration, repairs and other similar work. 
1.3  Process of Job Costing 
• Prepare a separate cost sheet for each job 
• Disclose cost of materials issued for the job 
• Employee costs incurred (on the basis of bill of material and time cards 
respectively) 
• When job is completed, overhead charges are added for ascertaining total 
expenditure  
© The Institute of Chartered Accountants of India
JOB COSTING 
 
    
 9.3 
1.4 Suitability of Job Costing 
• When jobs are executed for different customers according to their 
specifications. 
• when no two orders are alike and each order/job needs special treatment. 
• Where the work-in-progress differs from period to period on the basis of the 
number of jobs in hand. 
2. JOB COST CARD/ SHEET 
Each job order is asymmetrical to other due to specific and customised 
requirements. To ascertain cost of a particular job, it is necessary to record all the 
expenditure related with a job separately. For this purpose, Job Cost card is used. 
Job cost card is a cost sheet, where the quantity of materials issued, hours spent by 
different class of employees, amount of other expenses and share of overheads are 
recorded. This is helpful in knowing the total cost, profitability etc. of a job. The
following is an illustrative format of Job Cost card/ sheet. 
Format of Job Cost Sheet:  
JOB COST SHEET 
Description: _______________________ 
Blue Print No.: ______________________ 
Material No.: _______________________ 
Reference No.: ______________________ 
Job No.: ________________________ 
Quantity: _______________________ 
Date of delivery: __________________ 
Date commenced: _________________ 
Date finished: _____________________
Date Reference Details Material Labour Overhead 
   
 
 
 
 
 
Total 
 
   
   
© The Institute of Chartered Accountants of India
COST AND MANAGEMENT ACCOUNTING  9.4 
Summary of costs Estimated 
(`) 
Actual  
(`) 
 
For the job __________________ 
Units produced ______________ 
Cost/unit ___________________ 
Remarks ____________________ 
Prepared by: ________________ 
Checked by: _________________ 
Direct material cost 
Direct wages
Production overhead 
PRODUCTION COST  
Administration and 
Selling & Distribution 
Overheads 
 
TOTAL COST 
PROFIT/LOSS 
SELLING PRICE 
 
 
 
  
 
 
 
  
  
3. COLLECTION OF COSTS FOR A JOB   
3.1 Collection of Materials Cost 
An essential requirement of job cost accounting is that direct materials and their 
cost must be traced to and identified with specific job or work order. This 
segregation of materials cost by jobs or work order is brought by the use of 
separate stores requisitions for each job or work order. Where a bill of material is 
prepared, it provides the basis for the preparation of these stores requisitions. But 
when the entire quantity of materials specified in the bill of materials is drawn in 
one lot or in installments, the bill itself could be made to serve as a substitute for 
the stores requisition. 
After the materials have been issued and the stores requisitions have been priced, 
it is usual to enter the value of the stores requisition in a material abstract or 
analysis book. It serves to analyse and collect the cost of all direct materials 
according to job or work orders and departmental standing orders or expense code 
numbers. From the abstract book, the summary of materials cost of each job is 
posted to individual job cost sheets or cards in the Work-in-Progress ledger. 
The postings are usually made weekly or monthly. Similarly, at periodic intervals, 
from the material abstract books, summary cost of indirect material is posted to 
© The Institute of Chartered Accountants of India
JOB COSTING 
 
    
 9.5 
different standing orders or expense code numbers in the Overhead Expenses 
ledger. If any special material has been purchased for a particular job, it is generally 
the practice to charge such special material direct to the job concerned without 
passing it through the Stores Ledger, as soon as it is purchased. 
If any surplus material is left over in the case of any job, unless it can be immediately 
and economically used on some other job, the same is returned to the stores with 
a proper supporting document/stores Debit Note or Shop Credit, and the relevant 
job account is credited with the value of excess material returned to the stores. If 
the surplus material is utilised on some other job, instead of being returned 
to the stores first, a material transfer note is prepared. The transfer note would 
show the number of the transfer to job as well as transferee job (or jobs) so that, 
on that basis, the cost thereof can be adjusted in the Work-in-Progress Ledger. 
3.2 Collection of Labour Cost 
All direct labour cost must be analysed according to individual jobs or work orders. 
Similarly, different types of indirect labour cost also must be collected and accumu-
lated under appropriate standing order or expenses code number. The analysis of 
labour according to jobs or work orders is, usually, made by means of job time 
cards or sheets. All direct labour is booked against specific jobs in the job time 
cards or sheets. All the idle time also is booked against appropriate standing order 
expense code number either in the job time card for each job or on a separate idle 
time card for each worker (where the job time card is issued job-wise). The time 
booked or recorded in the job time and idle time cards is valued at appropriate 
rates and entered in the labour abstract or analysis book. All direct employee cost 
is accumulated under relevant job or work order numbers, and the total or the 
periodical total of each job or work order is then posted to the appropriate 
job cost card or sheet in Work-in-Progress ledger. The postings are usually made 
at the end of each week or month. 
The abstraction of idle time costs under suitable standing order or expenses code 
numbers is likewise done and the amounts are posted to the relevant departmental 
standing order or expense code number in the Overhead Expenses Ledger at 
periodical intervals. As regards other items of indirect labour cost these are 
collected from the payrolls books for the purpose of posting against standing order 
or expenses code numbers in the Overhead Expenses ledger. 
© The Institute of Chartered Accountants of India