JOB AND UNIT COSTING

Samit Paul
IIM, Ranchi
I. Job Order Costing (JOC)
 Method of costing applied in industries where
production is measured in completed jobs.
 Cost is compiled for a job or work order- not
for units i.e. printing of 5000 ledger sheets,
repairs of 50 computers.
 Production is against the customers order-
not for stock.
 Application- Printing press, automobile garage,
ship building, repair workshop, Foundry, and
other similar manufacturing units which
manufacture to customers specific requirements.

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Some implication
 Method of costing , whereby cost is compiled for
a job or work order.

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Cost Treatment

CostPrime cost (DM, DL, and DE) directly charged to

treatment

the particular job.

 Overhead charged to a job is apportioned at

predetermined departmental absorption rates
and recorded in the cost sheet.

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Documents
1. Production order/ manufacturing order: work
order- authorizing the production department to
produce a specified quantity of a product.

2. Cost sheet – For recording costs- statement of

cost.

3. Other document: documents used as control

mechanism: material requisition, tool orders,
inspection order etc.

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Job Cost Accounting Procedure
Cost Source

1. Direct material Copies of material requisition

2. Direct wages
3. Direct expenses
maintained by Stores Accounting
section.
Time tickets costed by payroll
department
Concerned department

Note: Manufacturing overheads are then applied at

predetermined departmental absorption rates and recorded in
the cost sheet.
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Challenges in Job order costing
 Considerable detailed clerical work
 Chances of errors are more
 JOC cannot be efficiently operated without
highly developed production control system.
Also requires intricate factory organization
system.
 Cost ascertained as historical cost, hence
doesn’t provide control of costs unless it is used
with standard costing system.

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Case 1
 M/S Centurion Engineering works limited

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II. Unit costing

 Where only one product or (uniform product) is

turned out, the maintenance of costing records is
made under single (or output) or unit costing.

 Simple manufacturing process and the product is

single (may be a few but of same kind not
varying in grades or quality).

 Collieries, Quarries, Brick-making, Breweries.

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Statement of cost
 For computing cost per unit , a statement of cost
is prepared.
 Prime cost
 Works cost
 Cost of production
 Cost of goods sold
 Cost of sales
 It is a periodical statement which is prepared
weekly, fortnightly, monthly, quarterly, annually.
 Note: profits may be ascertained if selling price is
known or estimated.
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Elements of cost
1. Prime cost
2. Works expenses or overheads
3. Scrap or wastage
4. Work in process
5. Office and administration expenses
6. Selling and distribution expenses

Note: profit is the difference between sales and

cost of sales.

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1. Direct materials
 Materials consumed=
Opening stock
Add purchases
Add carriage in and other incidental charges
Less closing stock of direct materials
Less scrap of raw material (abnormal)
Less materials returned or transferred to
other departments

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2. Direct labor
a) Labor costs are collected periodically through
pay rolls which are prepared separately for each
section of work.

b) The cost of abnormal idle time should be

deducted.

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3. Other direct or chargeable
expenses
 Expenses other than DM, and DL are
chargeable expenses: Excise duty, royalty,
expenses on designs, patterns and models.

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A. Prime Cost
 Prime cost =
Direct materials consumed
+ Direct labor/wages
+Other chargeable Expenses

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4. Works Expenses or overheads
 Indirect material:
 Oil, dusters, lubricants
Indirect labor:
 Wages to foremen, store keeper, watchman,
factory clerks
 Others:
 Steam, fuel, electric power at factory, lighting,
heating and water in factory, rent rates
insurance and rates at factory, Repairs and
depreciation of machine plant, factory building,
and loose tools, factory stationery, factory
research expenses, expense related to factory
establishment, welfare and workmen’s
compensation, insurance

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Treatment of work in progress (WIP)
 Since various units will be at different stages of
production the value of WIP will have to be
estimated for each stage separately.

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B. Works cost
Prime cost
+ Factory Expenses (works overheads)
= Gross works cost
+ Work in progress in the beginning
- Work in progress at the end
= Works cost

Note: works cost is also called as manufacturing

cost

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5. Office and administration expenses
a. Staff and management salaries
b. Director’s fees
c. Stationery, printing, postage, telephone, fax
and miscellaneous office expenses.
d. Office rent, tax, insurance, light and water
e. Counting house or computer and accounting
expenses.
f. Repairs, depreciation, and insurance of office
building, furniture and equipments.

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(C) Cost of production or office cost
Works cost
+ Office and administration cost
= cost of production
+ Opening stock of finished goods
- Closing stock of finished goods
= Cost of goods sold
+ Selling and distribution Expenses
= cost of sales
+ profit
= sales

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Treatment of defective or Rejected
Production
 Products are not as perfect as the saleable
product.

 Being rectified- Cost of rectification is

treated to be additional works overhead.
 Complete rejection: Sale proceeds of these
goods is used to reduce the cost of factory
cost.

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Production Account
 Statement of cost or cost sheet in a ledger
account form showing output and input cost.

 Particular form of manufacturing account

prepared in conjunction with the financial
accounts in order to show the cost of goods
manufactured.

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Case 2:

 Honesty Engineering works.

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