Chapter 9 Job, Batch & Service Costing Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

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1 Chapter 9 Job, Batch & Service Costing Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

2 Costing Methods A costing method is designed to suit the way goods are processed or manufactured or the way services are provided.

3 Job Costing Job costing is a costing method applied where work is undertaken to customers special requirements and each order is of comparatively short duration. A job is a cost unit which consists of a single order or contract. In job costing production is carried out in accordance with the wishes of the customer.

4 Job Costing Job costing is appropriate where each cost unit is separately identifiable (production relates to a single order) & is of relatively short duration (production of the product can be completed in one accounting period).

5 Job Cost sheets/cards Costs for each job are collected on the job cost sheet or job card. In job costing we usually carried out production in accordance with the special requirements of each customer, it is usual for each job to differ in one or more respect from another job.

6 Job Cost Information 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.

7 Job Cost Information Some labour costs, such as OT premium or the cost of rectifying sub-standard output, might be charged either directly to a job or else as an OH cost, depending on the circumstances in which the costs have arisen. OH is absorbed into the cost of jobs using the predetermined OAR.

8 Pricing the Job The usual method of fixing prices in a jobbing concern is cost plus pricing. Cost plus pricing means that a desired profit margin is added to total costs to arrive at the selling price.

9 Job Cost In a typical job cost the following cost can be included: Actual direct material cost Actual direct labour cost Absorbed manufacturing overheads.

10 Batch Costing 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.

11 Batch Costing A batch is a group of similar articles which maintains its identity during one or more stages of production and is treated as a cost unit.

12 Service Costing 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 organizations do not make or sell tangible goods.

13 Service Costing Service costing (or function costing) is a costing method concerned with establishing the costs, not of items of production, but of services rendered.

14 Specific Characteristics of Services Specific characteristics of services: Simultaneity service consumed at the same time. Heterogeneity variation from one service to another. Intangibility Perishability

15 Specific Characteristics of Services Some more principles of service costing: In service costing it is difficult to identify many attributable direct cost. Many cost must be shared over several cost unit, hence there will be high level of indirect costs as proportion to total costs. Composite cost units such as tonne-mile or room-night are often used in service costing.

16 Unit Cost Measures 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. Hotels, for eg may use the occupied bed-night as an appropriate unit of cost ascertainment and control

17 Unit Cost Measures Cost per service unit = Total costs for period / Number of service units in the period

18 Service Cost Analysis in Internal Service Situations 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 customer eg canteen, maintenance.

19 Questions & Answers

20 Thank You Ibrahim Sameer Seek knowledge from cradle to grave

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