Paper F2 Management Accounting 2018/12/31

Chapter 10 Job, batch and service costing 2018/12/31

Job, batch and service costing Chapter Preview Job, batch and service costing Job and batch costing Service costing Job cost card Define a cost units 2018/12/31 Ji Weili, JXUFE

Process Costing Job Costing Costing methods Chapter 11 Used for production according to customers’ special requirements. Built to order rather than mass produced. Many costs can be directly traced to each job. 2018/12/31 Ji Weili, JXUFE

Process Costing Job Costing Costing methods Chapter 11 Typical job order cost applications: Special-order printing Building construction Also used in service industry Hospitals Law firms 2018/12/31 Ji Weili, JXUFE

Job and batch costing Job = a cost unit of a single order/contract Batch = a cost unit which consists of a separate, readily identifiable group of units 2018/12/31 Ji Weili, JXUFE

Events in Job Order Manufacturing Receive orders from customers. Begin production. Schedule jobs. Order materials. 2018/12/31 Ji Weili, JXUFE

Job Order Manufacturing Activities Direct Materials Indirect Production Overheads Allocate Work in Process Finished Goods Cost of Goods Sold Indirect Direct Labor 2018/12/31 Ji Weili, JXUFE

Job Order Cost Documents The primary document for tracking the costs associated with a given job is the job cost sheet. Let’s investigate 2018/12/31 Ji Weili, JXUFE

Job Cost Sheet 2018/12/31 Ji Weili, JXUFE

Job Cost Sheet Let’s see one A materials requisition is used to authorize the use of materials on a job. 2018/12/31 Ji Weili, JXUFE

Materials Requisition C. Luther M. Batemen 2018/12/31 Ji Weili, JXUFE

Materials Requisition C. Luther M. Batemen Cost of material is charged to Job B15. Proper authorizaton 2018/12/31 Ji Weili, JXUFE

Materials Requisition C. Luther M. Batemen Type and quantity of material charged to Job B15. Pre-printed, sequentially numbered form. 2018/12/31 Ji Weili, JXUFE

Materials Requisition C. Luther M. Batemen The materials requisition form also serves as the source document for recording material usage in the accounting records. 2018/12/31 Ji Weili, JXUFE

Materials Ledger Card 2018/12/31 Ji Weili, JXUFE

Job Cost Sheet 2018/12/31 Ji Weili, JXUFE

Production Overhead Account Job Costing Document Flow Summary Direct materials The materials requisition indicates the cost of direct materials to charge to jobs and the cost of indirect materials to charge to overhead. Job Cost Sheets Production Overhead Account Materials Ledger Cards Materials Ledger Cards Materials Ledger Cards Materials Requisition Indirect materials 2018/12/31 Ji Weili, JXUFE

production Overhead Account Job Costing Document Flow Summary Direct Labor Employee time sheets indicate the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Employee Time Ticket Employee Time Ticket Employee Time Ticket Employee Time Sheet production Overhead Account Indirect Labor 2018/12/31 Ji Weili, JXUFE

Flow of All Job Costs Let’s examine the cost flows in a job order system. We will use T-accounts and start with materials. 2018/12/31 Ji Weili, JXUFE

Flow of All Job Costs Raw Materials Works in Process Direct Material Material Purchases Actual Overhead Costs Indirect Material Production Overhead 2018/12/31 Ji Weili, JXUFE

Flow of All Job Costs Next let’s add labor costs and absorbed production overhead to the job order cost flows. Are you with me? 2018/12/31 Ji Weili, JXUFE

Overhead absorbed to WIP Flow of All Job Costs Wages payable Work in Process Direct Labor Direct Material Incurred Actual Overhead Costs Indirect Labor Overhead absorbed to WIP Overhead Production Overhead When Actual absorbed production production overhead overhead / = an adjustment is needed. 2018/12/31 Ji Weili, JXUFE

Now let’s complete the goods and sell them. Still with me? Flow of All Job Costs Now let’s complete the goods and sell them. Still with me? 2018/12/31 Ji Weili, JXUFE

Direct Material Direct Labor Overhead Flow of All Job Costs Work in Process Finished Goods Direct Material Direct Labor Overhead Cost of Goods Mfd. Cost of Goods Sold Cost of Goods Sold 2018/12/31 Ji Weili, JXUFE

If the finished output is found to be substandard rectification Rectification costs If the finished output is found to be substandard rectification Not a frequent occurrence as a direct cost A frequent occurrence as a POH 2018/12/31 Ji Weili, JXUFE

Cost plus pricing If profit is 20% of cost If profit is 20% of sales price Selling price 120% Selling price 100% Costs 80% Costs 100% Profit 20% Profit 20% MARGIN MARK - UP 2018/12/31 Ji Weili, JXUFE

Now let’s see more details of job costing Example: Job Costing 2.9 Now let’s see more details of job costing 2018/12/31 Ji Weili, JXUFE

Cost of direct materials is small Unit cost is difficult to calculate Service costing Specific characteristics of services -- Simultaneity -- Heterogeneity -- Intangibility -- Perishability Service costing vs. other product costing Cost of direct materials is small Unit cost is difficult to calculate Costing will vary from one service to another 2018/12/31 Ji Weili, JXUFE

But what is a service cost unit ? Cost per unit Total costs for a period ______________________________ Cost per unit = Number of service units in the period But what is a service cost unit ? 2018/12/31 Ji Weili, JXUFE

Defining an appropriate cost unit Match up the following services with their typical cost units Service Cost unit Hotels Patient-day Education Meal served Hospital Full-time student Canteen Occupied bed-night 2018/12/31 Ji Weili, JXUFE

Composite cost unit A composite cost unit takes into account several elements of a service e.g. excess baggage service Cost per KG? OR Cost per mile transported? Cost per KG/mile 2018/12/31 Ji Weili, JXUFE

Service cost analysis for Internal services Purposes: Realistic apportionment Increased responsibility and awareness Control of service department costs Control of user department costs 2018/12/31 Ji Weili, JXUFE

Service cost analysis for service industry What are service organisations? --Don’t make or sell a tangible product --Profit making or not-for-profit sector E.g. Accountancy firms, hotels, schools, hospitals 2018/12/31 Ji Weili, JXUFE

End of Chapter 10 2018/12/31