Job Costing
It means ascertaining costs of an individual job, work order or project separately. According to ICMA London, “job costing is that form of specific order costing which applies where work is undertaken to customer’s specific requirements and each order is of comparatively of short duration.” Under this method of costing, each job is considered to be a distinct cost unit. As such, each job is separately identifiable.
In the case of a job, work is usually carried out within the factory or workshop. Sometimes, a job is accomplished even in the customer’s premises. This method of costing is applicable to ship building, printing, engineering, machine tools, readymade garments, shoes, hats, furniture, musical instruments, interior decorations etc.
Features:
Advantages of Job costing:
Requisites of Job costing system:
Procedure for Job order costing system:
The Procedure for job order costing system may be summarized as follows:
Illustration I
From the following particulars calculate the cost of Job No.505 and price for the job to give a profit of 25% on the selling price.
Material : Rs. 6820
Wage details:
Department X : 60 hrs @ Rs. 3 per hr
Y : 50 hrs @ Rs. 3 per hr
Z : 30 hrs @ Rs. 5 per hr
The variable Overheads are as follows:
Department X : Rs. 5000 for 5000 hrs
Y : Rs. 4000 for 2000 hrs
Z : Rs. 2000 for 500 hrs
The total fixed expenses amounted to Rs. 20,000 for 10,000 working hours
Calculate the cost of Job No. 505 and price for the job to give a profit of 25% on selling price
Solution:
Job Cost Sheet No. 505  

 Rs. 
Direct Material 
 6,820 
Wages: 


Department X  60 x 3 =180 

Department Y  50 x 3 =150 

Department Z  30 x 5 =150  480 
Prime Cost 
 7,300 
Overheads:  Variables 


Department X  60 x 1 = 60 

Department Y  50 x 2 = 100 

Department Y  30 x 4= 120  280 

 7,580 
Fixed OH 140 x 2 = 280(60+50+30 x 2) 
 280 
 Total cost  7,860 
Profit 25% on selling price ie 1/3 of cost 7860 x  1/3  2, 620 
Selling price 
 10,480 
Batch Costing
This is another form of job costing which is adopted in case of manufacturing of a large number of components of machines or of other articles. Since a large number of them are manufactured together and pass through the same process of manufacture, it is convenient to collect their cost of manufacture together. Separate job cost sheets are maintained for each batch of products. Each batch is allotted a number. Material requisitions are prepared batchwise, the direct labour is engaged batchwise and the overheads are also recovered batchwise. Cost of each component in the batch is then determined by dividing the total cost by the number of articles manufactured.
Feature of Batch Costing
Features of batch costing system are as under:
(a) Each batch is treated a job and costs are calculated for total batch.
(b) On completion of production cost per unit is found as
Difference between Job Costing and Batch Costing
Job Costing  Batch Costing 
It is carried out or a product is produced by specific orders.  The process of producing the product has a continuous flow and product is homogeneous. 
It is determined for each job.  It is compiled on time basis. 
Each job is separate and independent of other jobs.  Product lose their individuality as they are manufactured in a continuous flow 
Applications of Batch Costing
Batch costing is used for calculating total cost of each batch. Batch is small group of units which is produced for production purposes. We also identify batch of units in our production. All raw material is supplied on batch basis and other expenses are also paid on the basis of each batch.
For instance, in the drugs industry, producer will make the batch of tablets instead of producing single tablet. This will be easy to sell that batch in market. So, calculating cost of each batch, we will calculate material cost per batch, labour cost per batch and other expenses per batch. If we want to calculate cost per unit, we have to divide total batch cost with total batch units.
It is used in following industries:
Batch Costing Problem 1:
ABC Limited manufactures ring binders which are embossed with the customers’ own logo. A customer has ordered a batch of 600 binders. The following illustrate the cost for a typical batch of 100 binders.
Rs  
Direct materials  60 
Direct labour  20 
Machine set up  6 
Design and art work  30 
Prime cost  116 
Direct employees are paid on a piecework basis.
ABC Limited absorbs production overheads at a rate of 20% of direct wages cost. 5 % is added to the total production cost of each batch to allow for selling, distribution and administration overheads.
ABC Limited requires a profit margin of 25% of sales value.
The selling price for 600 binders (to the nearest penny) will be:
A. Rs 756
B. Rs 772.8
C. Rs 806.4
D. Rs 1008
Solution.
Rs  
Prime cost (Rs116 x 6)  696 
Overheads (` 20 x 6 x 20%)  24 
720  
Selling, distribution and admin overheads (180 x 5%)  36 
Total cost  756 
Selling price (756/75x100)  1008 
Batch Costing Problem 2:
Find out the Economic Batch Quantity from the particulars given below:
Annual demand Rs.9,600
Setting up Cost Rs.200
Cost of production per unit Rs.50
Rate of interest 10% p.a.
Solution.
Batch Costing Problem 3:
A Contractor has to supply 10,000 paper cones per day to a Textile unit. He finds that when he starts a production run he can produce 25,000 paper cones per day. The cost of holding a paper cone in stock for one year is 2 paise and the set up cost of a production run is Rs.18. How frequently the production run be made:
Solution.
(i) Based on 300 days in the year.
Annual Sales = 10,000 x 300 = 30,00,000 Paper Cones.
Set up Cost = Rs.18
Carrying Cost = Re. 0.02 per unit p.a.
73,500 + 10,000 = 7.35
So, Production run should be made in 7 or 8 working days.
Batch Costing Problem 4:
B K Bearing Ltd. is committed to supply 24,000 bearings per annum to Century Fans Ltd. on a steady daily basis. It is estimated that it costs 10 paise as inventory holding cost per bearing per month and that the setup cost per run of bearing manufacture is Rs.324:
(i) What should be the optimum run size for bearing manufacture?
(ii) What should be the interval between two consecutive optimum runs?
(iii) Assuming that the company has a policy of manufacturing 6,000 bearings per run, how much extra costs the company would be incurring as compared to the optimum run suggested in (i) above?
(iv) Find out the minimum inventory holding cost.
Solution.
(i) Optimum run size
where U = units to be produced in a year
S = setup cost
C_{c} = carrying cost per unit for one year (12 x 0.10 = Rs. 120)
No. of runs = 24,000 20 /3,600 = 20/ 3
(ii) Interval between two consecutive optimum runs :
Example and Solution.
Illustration 1:
Batch No. A100 incurred the following costs:
Factory overheads are absorbed on labour hours basis and rates are Rs 7per hour for Department A and Rs 4 per hour for Department B. The firm uses a cost plus system for selling prices and expects a 25%gross profit (sales value min us factory cost). Administrative overheads are absorbed at 10% selling price. Assuming that 1000 were units produced in Batch A100. Calculate the selling prices per units.
Solution.
Illustration 2:
Compute the economic batch quantity for a company using batch costing with the following information:
Solution.
Illustration 3:
The annual demand of a product is 24,000 units. It is produced in batches and the largest size of a single batch is 6,000 units. After each batch is complete, the set up cost is Rs. 750. The annual carrying cost is Rs. 2.25 per unit.
Assume average inventory as onehalf of the number of units made in each batch. Selecting 4, 6, 8, 12 and 24 batches per annum, determine annual costs of each and state the optimum number of batches to minimize the total costs.
Solution.
Illustration 4:
The demand of an item is uniform at a rate of 25 units p.m. The set up cost is Rs. 30 each time a production is made. The production cost is Rs. 3 per item and the inventory carrying cost is 50 paise per unit p.m. If the shortage cost is Rs. 3 per item p.m. determine how often to make a production run and of what size? Also calculate reorder level.
Solution.