chapter 9 job, batch & service costing...service costing • service costing can be used by...
TRANSCRIPT
Chapter 9
Job, Batch & Service Costing Ibrahim Sameer (MBA - Specialized in Finance,
B.Com – Specialized in Accounting & Marketing)
Costing Methods
• A costing method is designed to suit the way
goods are processed or manufactured or the way
services are provided.
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.
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).
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.
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.
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.
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.
Job Cost
• In a typical job cost the following cost can be
included:
• Actual direct material cost
• Actual direct labour cost
• Absorbed manufacturing overheads.
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.
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.
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.
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.
Specific Characteristics of
Services
• Specific characteristics of services:
• Simultaneity – service consumed at the same time.
• Heterogeneity – variation from one service to
another.
• Intangibility
• Perishability
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.
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
Unit Cost Measures
Cost per service unit = Total costs for period /
Number of service units in the period
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.
Questions & Answers
Thank You
Ibrahim Sameer Seek knowledge from cradle to grave