F2:Management Accounting

2 Designed to give you knowledge and application of: Section D: Cost accounting techniques D1. Accounting for materials D2. Accounting for labour D3. Accounting for overheads D4. Marginal and absorption costing D5. Job and batch costing D6. Process costing D7. Service/operation costing

3 Learning outcomes D5: Job And Batch Costing  Describe the characteristics of job and batch costing. [1]  Describe the situation where the use of job or batch costing would be appropriate. [1]  Prepare cost records and accounts in job and batch costing situations. [1]  Establish job costs from given information. [1]

4 Is a form of specific order in which costs are attributed to individual jobs Job Costing Batch Costing Is a method of costing which applies to industries where identical articles are manufactured together in batches Job costing Production process is non-repetitive & not continuous Each job maintains separate identity throughout production process Any two jobs are independent of each other Each job consumes different materials, labour resources & indirect facilities Aircraft manufacturing Ship-building Tailor-made clothing Describe the characteristics of job and batch costing Describe the situations where the use of job costing would be appropriate Refer to Summary on page D5.4

5 Batch costing Where features of products sold need to be uniform Production department requires identical parts manufactured in house Customer order specifies identical / similar items Footwear manufacturing Drug and pharmaceuticals Ready-made garments Describe the situations where the use of batch costing would be appropriate

6 Batch costing No separate sheet for each batch A fully fledged accounting system is followed to record the total costs relating to a batch. Job costing Job cost sheet Separate job cost sheet for each job Cost records and accounts in job and batch costing

7 $170 Total Cost 45 Non-production overhead at 60% of prime cost (W2)4 50 Production overhead (W1)3 30 Direct labour2 45 Direct material1 $Sr. No. Question A company operates a job costing system. Job number 1012 requires $45 of direct materials and $30 of direct labour. Direct labour is paid at the rate of $7.50 per hour. Production overheads are absorbed at the rate of $12.50 per direct labour hour and non- production overheads are absorbed at the rate of 60% of prime cost. What is the total cost of job number 1012? A.$170 B.$195 C.$200 D.$240 Answer A.Job No. 1012

8 Workings W1 Calculation of labour hours required for Job No It is given that total direct labour cost = $30 Rate per hour of labour = 7.50 Therefore labour hours required = Total cost/rate per hour = $30/$7.50 = 4 hours Production overheads are charged at $12.50 per direct labour hour. Therefore production overhead cost = Total Hours x Rate per Hour = 4 hours x $12.50 per hour = $50 W2 Calculation of prime cost = Direct material + Direct labour = $45 + $30 = $75 Non-production overhead = 60% of prime cost = $75 x 60% = $45

9 RECAP  Describe the characteristics of job and batch costing ?  Describe a situation where the use of job or batch costing would be appropriate ?  Prepare cost records and accounts in job and batch costing situations ?  Establish job costs from the given information ?