1 Job costing

2 Job Costing Job costing is a product costing method adopted by an enterprise that provides limited quantities of unique products This kind of enterprise produces tailor- made goods or services that conform to the specifications designed by customer Costs can be determined separately for each job order

3 Costing under three different method Actual costing Normal costing Standard costing

4 Costing systemProduction cost Actual costingActual direct materials + Actual labour + Actual overhead Normal costingActual direct material + Actual direct labour + Applied overhead (I.e. Per-determined overhead rate * actual level of productivity) Standard costingStandard direct material + standard direct labour + applied overhead

5 Which one better? Normal product costing and standard costing are preferable

6 Reasons Under actual costing, the product cost will be delayed until the end of the accounting period. However, the product cost should be obtained beforehand for setting selling price Since monthly productivity may vary due to holiday periods and seasonal variation, actual overhead is fluctuating and cannot reflect normal production conditions

7 Flow chart Delivery of materials to job Payment of wages to workers Charging of applied overhead Costs to work in progress Work In Progress Cost of sales sold indirect direct indirect

8 Accounting entries Dr. Store ledger control Cr. Cost ledger control To record the purchase of materials Dr. WIP (direct) Dr. manufacturing overhead (indirect) Cr. Store ledger control To record direct and indirect material issued Dr. wages control Cr. Cost ledger control To record wages paid Dr. WIP (direct) Dr. Manufacturing overhead (indirect) Cr. Wages control To record direct and indirect wages incurred

9 Accounting entries Dr. Manufacturing overhead Cr. Cost ledger control To record indirect expenses Dr. WIP Cr. manufacturing overhead To apply overhead using predetermined overhead absorption rate Dr. Cost of sales Cr. WIP control To record cost of sales of goods produced Dr. Cost of sales Cr. Other overhead To record other applied overhead charged to cost of sales

10 Accounting entries Dr. Costing Profit and loss Cr. Cost of sales Cr. Under-absorbed overheads /Dr. Over-absorbed overheads To transfer the balance of cost of sales and under- / over- absorbed overheads to profit and loss account Dr. Cost ledger control Cr. Costing Profit and loss To transfer the sale value of jobs completed

11 Example Refer to textbook P.198

12 Job 682 Bal b/f 2310 Materials 9780 Wages 3000 Factory overhead (3000*50%) 1500 Job 683 a/c – material transfer 900 Material return 1600 Cost of sales Job 683 Materials 7480 Wages 4000 Factory overhead (4000*50%) 2000 Job 683 a/c – material transfer 900 Material return 1600 Cost of sales Job 682 a/c – material transfer 900 Job 684 a/c – Material transfer 500 Job Account

13 Job 684 Materials 7900 Wages 2500 Factory overhead (2500*50%) 1250 Job 683 a/c – material transfer 500 Cost of sales Job 685 Materials 8840 Wages 2500 Factory overhead (2500*50%) 1250 Material return 340 Cost of sales

14 Job 682Job 683Job 684Job 685 Materials Wages Factory overhead Factory cost Adm. Overhead (20%) Cost of sales Sales value Profit/ (Loss) Job Cost Sheet

15 Control Accounts Store ledger control account Bal b/f 8400 Cost ledger control (purchase) WIP control (material return to store) 1940 WIP control (issue direct material Factory O/H control (issue indirect Material 3000 Bal c/f Wages control account Cost ledger control ((wages paid)( ) WIP control (direct labour) Factory O/H control ( indirect Labour)

16 Factory overhead control account Store ledger control (indirect) 3000 Wages control (indirect) 1000 WIP control (12000*50%) 6000 Under-absorbed overhead Cost ledger control - Factory indirect exp Actual overhead Estimated overhead absorbed Work in progress control account Store ledger control (direct) Wages control (direct) Store ledger control – return 1940 Cost of sales ( )40120 Bal c/f Factory O/H (O/H absorbed) 6000 Bal b/f 2310

17 Admin & marketing overhead control account Cost ledger control (actual) Cost of sales 8024 ( ) Over-absorbed overhead Actual overhead Estimated overhead absorbed Under - / Over- absorbed overhead control Factory overhead control - Under absorbed600 Admin & Marketing overhead - Over absorbed74 Costing profit and loss

18 Cost of Sales WIP control Admin & marketing O/H 8024 Costing profit and loss Costing profit and loss Cost of sales Under-absorbed overhead 526 Cost ledger control – sales Cost ledger control – net profit Cost ledger control account Costing profit and loss - sales Bal b/f10710 Store ledger control Wages control13000 Factory overhead control2600 Admin & Marketing O/H control 7950 Consolidated profit and loss Bal c/d ( ) 16590