Chapter 10 Job, Batch and Service costing

Study guide Describe the characteristics of job and batch costing. [k] Describe the situations where the use of job or batch costing would be appropriate. [k] Prepare cost records and accounts in job and batch costing situations. [s] Establish job and batch costs from given information. [s] Identify situations where the use of service/operation costing is appropriate. [k] Illustrate suitable unit cost measures that may be used in different service/operation situations.[s] Carry out service cost analysis in simple service industry situations.[s]

Job and batch costing 1.1 Job and job costing A cost unit is a unit of product or service to which costs can be related. A job is a cost unit which consists of a single order or contract Job costing has the following features: Work is undertaken to customers’ special requirements Each order is of short duration Jobs move through operations as a continuously identifiable unit Jobs are usually individual and separate records should be maintained on an individual job costing sheet / job card

1.2 Job cost information A job cost card word like: Direct materials The organization may also absorb non-production overheads and include these in the estimate of the total jobs cost Direct materials Direct labour Variable overheads Prime cost Fixed overheads Total cost Job XYZ xx

Material costs for each job are determined from material requisition notes. Labour times on each job are recorded on a job ticket, which is then costed and recorded on the job cost sheet. Some labour costs, such as overtime premium or the cost of rectifying sub-standard output, might be charged either directly to a job or else as an overhead cost, depending on the circumstances in which the costs have arisen. Overhead is absorbed into the cost of Jobs using the predetermined overhead absorption rates,

→ Is charged as a direct cost to job 1.3 Rectification costs P193 If the finished output is found to be substandard, it may be possible to rectify the fault. Rectification costs can be split into two categories: Rectification work that is not a frequent occurrence → Is charged as a direct cost to job Rectification work that is a frequent occurrence → Is treated as a production overhead.

1.4 Pricing the job P193 The usual method of fixing prices in a jobbing concern is cost plus pricing （成本加成定价法）. Cost plus pricing means that a desired profit margin is added to total costs to arrive at the selling price. The final price quoted will, of course, be affected by what competitors charge and what the customer will be willing to pay.

1.5 Batch costing Batch costing is very similar to job costing - each batch of similar articles is separately identifiable A batch is a group of similar articles which maintains its identity through production and is treated as a cost unit. The cost per unit manufactured in a batch is the total batch cost divided by the number of units in the batch.

2. Service costing P199 Service costing is a costing method concerned with establishing the costs, not of items of production, but of services rendered. Service organisations do not make or sell tangible goods. There are two main types of service: Services provided by a company operating in a service industry Services provided internally by a service department to other departments

2.1 Specific characteristics of service P200 Simultaneity Heterogeneity Intangibility Perishability

2.2 （Composite）Cost unit in service costing Road, rail and air transport service Passenger/mile or kilometre, ton/mile or kilometre Hotels Occupied bed-night Hospitals Education Patient Full-time student Catering establishment Meal served

2.2 Service costing versus product costing P199 Many services are revenue earning but others are not In many services the cost of direct materials will be relatively small compared to the labour, expenses and overheads cost The purpose of service costing might be to provide management information on costs and efficiency This is in contrast to product costing where the aim is to establish profit/loss

2.3 The objectives of service cost analysis P.201 Compare planned cost with actual cost Calculate a cost per unit of service Use cost per service unit as part of control function Calculate prices for services being sold to third parties Analyse costs to assist planning, control and decision making Internal service situations aim to control costs of service department and user department External service providers need cost per unit

3. Service cost analysis ——in internal service situations Service department costing is used to establish a specific cost for an ‘internal service’ that is a service provided by one department for another, rather than one sold externally to customers. Services departments therefore include canteens and data processing departments. Two basic purposes: To control the costs and efficiency in the service department. To control the costs of the user departments, and prevent the unnecessary use of service.

3.1 Transport costs P201 If a company has a fleet of lorries or vans which it uses to distribute its goods, it is useful to know how much the department is costing for a number of reasons.

3.2 Canteen costs P202 A feature of canteen costing is that some revenue is earned when employees pay for their meals, but the prices paid will be insufficient to cover the costs of the canteen service. The company will subsidise (给……津贴) the canteen and a major purpose of canteen costing is to establish the size of the subsidy.

Canteen costs

Canteen costs Overhead cost Food and Drink Depreciation Labour costs Gas and electricity Consumable stores

3.3 Maintenance costs p203 If maintenance costs in a factory are costed as jobs (that is, if each bit of repair work is given a job number and costed accordingly), repair costs can be charged to the departments on the basis of repair jobs actually undertaken, instead of on a more generalised basis, such as apportionment according to machine hour capacity in each department. Departments with high repair costs could then consider their high incidence of repairs, the age and reliability of their machines, or the skills of the machine operatives.

4. Service cost analysis ——in service industry situations P204

Chapter roundup A costing method is designed to suit the way goods are processed or manufactured or the way services Job costing is a costing method applied where work is undertaken to customers' special requirements and each order is of comparatively short duration, Costs for each job are collected on a job cost sheet or job card.

Material costs for each job are determined from material requisition notes. Labour times on each job are recorded on a job ticket, which is then costed and recorded on the job cost sheet. Some labour costs, such as overtime premium or the cost of rectifying sub-standard output, might be charged either directly to a job or else as an overhead cost, depending on the circumstances in which the costs have arisen. Overhead is absorbed into the cost of Jobs using the predetermined overhead absorption rates,

The usual method of fixing prices within a jobbing concern is cost plus pricing. It is possible to use a job costing system to control the costs of an internal service department, such as maintenance department or the printing department. Batch costing is similar to job costing In that each batch of similar articles is separately identifiable, The cost per unit manufactured in a batch is the total batch cost divided by the number of units in the batch. Service costing can be used by companies operating In a service Industry or by companies wishing to establish the cost of services carried out by some of their departments, Service organisations do not make or sell tangible goods.

Specific characteristics of services Simultaneity Heterogeneity Intangibility Perishability The main problem with service costing is the difficulty in defining a realistic cost unit that represents a suitable measure of the service provided. Frequently, a composite cost unit may be deemed more appropriate. Service department costing Is also used to establish a specific cost for an Internal service which is a service provided by one department for another, rather than sold externally to customers.