Job Costing

What is Job Costing?

Definition of Job Costing : Job Costing is method of costing in which we calculate the cost of each job. Job here means a small work or group of small activities which we can identify in any product’s production. It is also necessary for producing any product. Some, customer can order for getting specific job not all product. So, it is very necessary to find that job order's cost through job costing method.
Where is Job Costing Used?

Job Costing is used in that industry where we differentiate one job with other job. In that situation, we can collect cost of each work order or product line. For making furniture or machinery or its tools or ship building, its work can be divided in small parts and each part will be collected under job costing.

What is Job or Work Account?

In job costing, we make job account which demonstrates material, labor and direct expenses at different dates because we use these expenses at different period. So, when we expand, we record at that time. After this, we add for calculating prime cost of that job.

Procedure of Job Costing Accounting

1. Material Cost Accounting

In job costing procedure’s first step, we have to identify each job’s material cost and to record it. When any material is issued from store, summary of that material cost of each job is posted to individual job cost sheet. On this basis, we find what is material cost of each job when production is in work-in-process. Here are two points which you should know.

Ist point:

If there is any material which is surplus after using it to specific job, we will return it to store and it will be sent with store debit note and relevant job account will be credited with that cost of material.

2nd point:

If there is any surplus material which is adjusted with any other job work, then we will make a material transfer note and on that basis, we will transfer material and its cost from one job to other job.

2. Labour Cost Accounting

On the basis of job time card or sheet, we can allocate labour cost to each job or work order. We also adjust of total idle time from labour cost in each job.

3. Overhead Cost Accounting

On the basis of machine hour rate, labour hour rate or any other basis we allocate and identify different overhead expenses for each job. It is difficult but with suitable overhead rate to each individual article manufacturing, we identify overhead in each job.

Job Costing Example

Mayur engineering co. engaged in job work has completed all the jobs in hand on 30th dec. 2009 except job no. 447. The cost sheet on 30th dec. 2009 showed direct material and direct labour cost of Rs. 40,000 and Rs. 30,000 respectively as having being incurred on job no. 447. The cost incurred by the business on 30st dec. 2009, the last date of the accounting year were as follows :

Direct material Rs. 2000

Direct labour Rs. 8000

Indirect labour Rs. 2000

Misc. Factory overhead Rs. 3000

The company follows the practice to make job absorbed factory overheads on the basis of 120% of direct labour cost. Prepare a composite job cost sheet for job 447 showing analytical computation. If any, of the value of WIP on job no. 447.

Job Costing Advantages

1. # With job cost, you can calculate each job order cost. So, with this, we need not to find all the cost of product. For this, we need on document job order card and we collect all direct material cost, labour cost and overhead cost relating to this. Suppose, you have get order of specific equipment of a machine. You company can make machinery in whole and also produce a specific equipment in machine treated as specific job order and then after making, its cost and price is calculated.

2. # In job costing, we can composite cost of all jobs by adding each job’s direct material cost, labour cost and overhead cost.

3. # Job costing can also be used if you are doing repair work by yourself.

4. # If production has to do according to specific need of customer.

Related : Job Costing in Tally