ACCA MA Syllabus C. Cost Accounting Techniques - Characteristics of job and batch costing - Notes ^{1 / 17}

Job costing

- is a costing method applied where work is undertaken to customers' special requirements

- each order is of comparatively short duration

- production is usually carried out in accordance with the special requirements of each customer

- it is usual for each job to differ in one or more respects from another job

- the main aim of job costing is to identify the costs associated with completing the order

- individual jobs are given a unique job number and the selling prices of jobs are calculated by adding a certain amount of profit to the cost of the job

Illustration

For Job 1300:

Direct materials $90
Direct labour $150 (for 10 labour hours)
Direct expenses $60

Production overheads are absorbed at $50/direct labour hour

Non production overheads are 130% of prime cost.

What is the total cost of the job?

• Solution

  Direct materials $90
  Direct labour $150
  Direct expenses $60
  Prime cost  $300

  Production overheads (10 labour hours x $50/hour) $500
  Non production overheads (130% * $300) = $390

  Total cost of the job $1,190

Batch costing

Batch costing is similar to job costing in that each batch of similar articles is separately identifiable. 

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.

The cost per unit manufactured in a batch is the total batch cost divided by the number of units in the batch.

                                             Total production cost of batch
Cost per unit in batch =  ------------------------------
                                                Number of units in batch

The selling prices of batches are calculated by adding a profit to the cost of the batch

 i.e. very similar to job costing