Costing Methods Job A job is a cost unit which consists of a single order or contract Job costing Is a costing method applied where work is undertaken.

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Presentation transcript:

Costing Methods Job A job is a cost unit which consists of a single order or contract Job costing Is a costing method applied where work is undertaken to customers special requirements and each order is of comparatively short duration

Cost Plus Pricing Cost Plus Pricing is the usual method of fixing the selling price where job costing is concerned. The desired Profit Margin is added to the the total cost to arrive at the selling price.

Disadvantages of Cost Plus Pricing No incentive to cost control as profit is guaranteed No motivation to tackle inefficiencies or waste Overheads are apportioned in an arbitrary way and this may lead to under and over pricing

Make-up of Job Costs Direct Material + Direct Labour Direct Expenses = Prime cost Allocation of Production Overheads =Factory Cost / Production Cost Allocation of Other Overhead =Total Cost

Batch Costing A batch is treated as a job during production and the costs are collected in the same manner as for job costing When the batch job is complete a cost per unit can be calculated by taking the total batch cost divided by the number of units in the batch

Service Costing Service costing applies where the cost unit is a unit of service All costs are collected and divided by the unit of service to arrive at a cost per unit of service Note: the difficulty with this method of costing is the determining realistic cost unit that represents a suitable measure of the service provided