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Job Costing Procedure


Job Costing Procedure

Job order cost system enables an organization to calculate the total cost of
executing a job and also to show in detail their cost components, which may take
the form of either a special order, or a batch of orders. Under this method a job cost
sheet is prepared for every job which is undertaken, on the basis of material
requisition concerned. Labour cost is calculated on the basis of time clocked in
respect of the job with the help of time tickets and factory overheads. This labour
cost is added to arrive at the total cost of the job. Overheads are added on some
rational basis.
Thus the total cost of a job as indicated by the job cost sheet consists partly of
direct costs and partly of costs arrived at by assignment, allocation, apportionment
and finally by absorption. Thus it is clear that similar jobs executed during a certain
time period are bound to have different units of production. The unit cost is
determined by dividing total cost of the job by the number of units or a volume of
goods under that job.
The following are the stages in job costing:
1) Receiving an enquiry – The customer will usually enquire about the price,
quality to be maintained, the duration within which the order is to be executed
and other specification of the job before placing an order.
2) Estimation of the price of the job – The cost accountant estimates the cost of
the job keeping in mind the specification of the customer. While preparing
estimate, the cost of execution of similar job in the previous year and possible
changes in the various estimates of cost are taken into consideration. The
prospective customer is informed with the estimate of the job.
3) Receiving of order – If the customer is satisfied with the quotation price and
other terms of execution, he will then place the order.
4) Production order – If the job is accepted, a Production Order is made by the
Planning Department. It is in the form of instructions issued to the foreman to
proceed with the manufacture of the product. It forms an authority for starting
the work. It contains all the information regarding production. It is prepared with
sufficient copies so that a copy of the same may be given to all the departmental
managers or foremen who are required to take any part in the production.

5) Recording of costs – Costs are collected and recorded for each job under
separate production order number. Generally, job cost sheet is maintained for
each job. This is a document which is used to record direct material, direct
wages and overheads applicable to respective jobs. The basis of collection
costs are:
a) Materials – Material Requisitions, Bill of Materials or Material Issue Analysis
b) Wages – Operation Schedule, Job Card or Wages Analysis Sheet.
c) Overheads – Standing Order Numbers or Cost Account Numbers.

6) Completion of job – On completion of a job, a completion report is sent to
costing department. The expenditure under each element of cost is totaled and
the total job cost is ascertained. The actual cost is compared with the estimated
cost so as to reveal efficiency or efficiency in operation.
7) Profit or Loss on job – It is determined by comparing the actual expenditure of
cost with the price obtained.

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