JOB AND CONTRACT COSTING

Made by:Alisha D’souza –

12SJCCB145Samuel Nazareth –

12SJCCB170

the proposed or estimated cost of producing or undertaking

something.

Costing

Different types of Costing

Job CostingContract CostingBatch CostingUnit CostingProcess CostingOperating CostingMultiple CostingUniform Costing

Meaning of Job Costing

Costing technique used to ascertain cost of a job or work-order is called job costing. Sometimes, it is also called "terminal" costing and it includes contract costing.

The term job Costing may be defines as “in job costing, costs are collected and accumulated according to jobs, contracts, products or work orders. Each job is treated as a separate entity for the purpose of costing.

Under this method, cost is collected separately for each job in their respective job order cost sheet.

Meaning of Contract Costing

A way of providing a quotation for especially large and long term projects that will usually be performed over a number of accounting periods.

For example, large civil engineering projects will often involve a business using contract costing when estimating the cost of participating in the project.

1.High proportion of direct costs.

2.Low indirect cost.

3.Difficulties of cost control.

4.Surplus material.

5.Each contract takes a long time to complete.

Features of Contract Costing

Meaning of Batch Costing The identification and assigning of relevant

costs incurred in completing the manufacturing process of a specified batch of components or items

Each batch is treated separately as an independent unit for cost purpose.

The batch cost is then used to determine the unit cost of article produced.

E.g: Bakery, toy manufacturing, readymade garments, etc.

Estimating costs by measuring the amount of work, or number of units, involved and applying a standard price per unit.

This method is used to ascertain cost where the production process is continuous and product can be expressed in identical quantitative unit.

This method is also called 'output' or 'single output costing'.

This method is suited to industries like brick making, mining, cement, flourmill, etc.

Meaning of Unit Costing

Meaning of Process Costing •It is an accounting  methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process. It assigns average costs to each unit.

•Type of operating cost

• It is used to ascertain the cost of a product at each process or stage of manufacture. 

Eg : industries producing homogeneous products

• This method of costing is applicable to ascertain cost of operating a service, such as bus, railways, water supply, nursing home, etc.

• In such organizations, the unit of cost is a service unit,

• E.g., passenger-kilometer in case of bus, ton-kilometer in case of truck, kilowatt- hour for electric power and patient-day in case of nursing home, etc. This is also called 'service costing'.

Meaning of operating costing

• Where more than one costing method is used to ascertain the cost of a product, it is known as multiple costing. This method is applied where a product comprises of variety of components separately produced and subsequently assembled.

• This involves use of different methods of costing for different components.

• It is also known as 'composite costing'. This is applied to industries like, motor car, television, radio, refrigerator, etc.

Meaning of Multiple Costing

• This basically helps in making inter-firm comparison.

• Uniform Costing: It is not a distinct method of costing when several undertakings start using the same costing principles or practices, they are said to be following uniform costing. Different concerns in an industry should adopt a common method of costing and apply uniformly the same principles and techniques for better cost comparison and common good and helps in mutual cost control and cost reduction.

Meaning of Uniform Costing

Differences between Job and Contracts CostingBasis Jobs Costing Contracts Costing

Area of work

Used for calculating cost in very small work like making of specific type of product.

Used for calculating cost in very big work like construction of 10 floors, a bridge, etc.

Period  Short Period Long PeriodAccount Job account for

every job. Different expenses for every job.

Contract account for every contract. Work in progress is also considered in the form of Work Certified and Work Uncertified.

Basis Jobs Costing Contracts Costing

Place of work

Done usually inside the factory

Done at a sight away from the factory

Calculation of Profit

Calculated after every job’s completion

Requires crediting of profit of incomplete contracts at the end of each accounting period

Types of Contracts

1)Fixed Price Contracts

2)Cost Plus Contracts

3)Escalation Contracts

•Contract that provides for a price which normally is not subject to any adjustment unless certain provisions (such as contract change, economic pricing, or defective pricing) are included in the agreement.

•Also called firm price contract.

Fixed Price Contract

Cost Plus Contract

A cost-plus contract, also termed a cost reimbursement contract, is a contract where a contractor is paid for all of its allowed expenses to a set limit plus additional payment to allow

for a profit.

• It is a contract where the prices of the contract go up. In this case both, the parties are benefited as the element of risk is avoided.

Escalation contract

• When a large contact is undertaken, a certain amount is paid for the work done regularly. The work done is calculated by supervisors and the work is termed as certified.

• Work certified is the amount paid to the work that has been checked and then paid off.

Work Certified

• Work uncertified means work done but not certified by authority. So, the contractee will cut some money on the basis of work uncertified and will keep in his pocket. This will be retention money.

Work Uncertified

Retention Money•Payment for a service or product that is withheld pending the completion of some specified condition.

•The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.