This is a broad costing system, which is applicable where work jobs consist of separate jobs, batches or contracts. Each job, batch or contract is a cost unit and in most cases, it is different from another. Each order made can be identified separately and the system is designed to find the cost of each order. Specific order costing is subdivided into:
- Job costing
- Batch costing
- Contract costing
This is a costing method which is applied when a job/cost unit is relatively of small size, is undertaken to fit the customer’s specifications and is of comparatively short duration: Each job moves through the operations continuously as an identifiable unit. The method is usually adopted by businesses, which receives orders for work peculiar to the needs of individual customers.
- Features of Job costing
Product is against the customer’s order and not on job stocks
Each job has its own characteristics and requires special attention and skills.
- Procedures of Job Costing
The application of job costing method begins when a customer’s order is received. After accepting an order, an individual work/job order number is assigned to each job for or separate order identification.. Production order is then made giving authority for the job to start. A job cost account for each job is then opened. In this account, all costs relating to that particular job are recorded and this account closed only when the job is complete. After completion of the job, an invoice is prepared and served to the customer.
- Materials for each job are made using material requisition forms
- Labour is charged on the basis of the amount of time used to complete that particular job as recorded in time-keeping records.
- Overheads are charged on the basis of an predetermined overhead absorption rate.
Applied Overhead absorption rate = Budgeted Overheads ÷ Denominator value
The Denominator value where the denominator value refers to units of some specified overhead absorption base e.g. machine hours, direct labour hours.
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