Job Costing and Batch Costing: Procedure, Job Cost Sheet and Applications Questions

Question 1

Define job costing.

Accepted Answer

Job costing is a method of costing in which costs are collected and ascertained separately for each job or work order.

Question 2

What is a job number?

Accepted Answer

Job number is a unique identification number assigned to a job to record and control all costs related to that job.

Question 3

State the meaning of batch costing.

Accepted Answer

Batch costing is a form of job costing where costs are collected for a batch of identical units treated as one job.

Question 4

Mention any one industry where job costing is used.

Accepted Answer

Job costing is used in printing presses (custom orders like brochures/books).

Question 5

What is a job cost sheet?

Accepted Answer

A job cost sheet is a statement that shows the total cost of a specific job by listing direct materials, direct labour, direct expenses and absorbed overheads.

Question 6

Define prime cost.

Accepted Answer

Prime cost is the total of direct material, direct labour and direct expenses.

Question 7

Explain the main features of job costing (any three).

Accepted Answer

Job costing is used where each customer order/job is separate and identifiable. The main features (write any three, explained) are:

1) Separate job identity and cost accumulation
- Each job/work order is given a unique job number and a separate job cost sheet is opened.
- All costs related to that job are collected job-wise, so total cost and profit can be found for each job.

2) Direct costs are traced to the job using documents
- Direct materials are charged based on Material Requisition Notes (and returns are credited).
- Direct labour is charged based on job cards/time tickets (time booking).
- Direct expenses (special hire, design fee, royalty) are charged directly to the job.

3) Overheads are absorbed by a predetermined rate
- Indirect costs cannot be traced to a job; hence factory/admin overheads are charged using an absorption rate such as % of wages, labour hours or machine hours.
- This ensures each job bears a fair share of overhead.

4) Useful for control and quotation
- Estimated vs actual job cost comparison helps in cost control, and job-wise cost helps in quotations/tenders.

Thus, job costing gives accurate job-wise cost and supports managerial control and pricing.

Question 8

Differentiate between job costing and process costing (any three points).

Accepted Answer

Job costing and process costing differ on several bases (any three points with examples):

| Basis | Job costing | Process costing |
|---|---|---|
| Nature of production | Customised / made-to-order; each job is distinct | Continuous and repetitive; large-scale standard output |
| Cost unit | Job/work order (Job No.) | Process/department (and then cost per unit) |
| Cost collection | Costs are collected job-wise on a job cost sheet | Costs are collected process-wise and averaged over output |
| Work-in-progress | WIP is tracked job-wise | WIP is tracked by process with stages of completion |
| Transfer of cost | No inter-process transfer (job remains separate) | Costs transfer from one process to next |
| Examples | printing, repairs, furniture, custom engineering | cement, chemicals, sugar, paper |

In short: job costing suits non-repetitive customer orders, while process costing suits continuous mass production.

Question 9

What are the main elements shown in a job cost sheet? Explain briefly.

Accepted Answer

A job cost sheet is a statement that summarises the total cost of a particular job. The main elements are:

1) Direct materials
- Materials issued specifically to the job (supported by Material Requisition Notes).
- Any returns are deducted, and abnormal loss/scrap treatment is shown as per policy.

2) Direct labour
- Wages of workers engaged on the job (based on time booking/job cards).
- Overtime premium may be charged to the job if overtime is for that specific job.

3) Direct expenses
- Expenses directly identifiable with the job (special tool hire, design fee, royalty).

4) Overheads absorbed (indirect costs)
- Factory/works overhead absorbed using a rate (e.g., % of wages, labour hour rate, machine hour rate).
- Administration overhead (and sometimes selling & distribution) may be added depending on costing policy.

These items build up prime cost → works cost → cost of production/cost of sales, and then profit is added for quotation/selling price.

Question 10

Explain batch costing and state how unit cost is determined.

Accepted Answer

Batch costing is a special form of job costing in which a batch of identical units is treated as one job. It is used when production is done in lots/batches (e.g., 500 identical bolts, 1,000 pens).

How costs are collected:
1) A batch number is allotted and a batch cost sheet is opened (similar to a job).
2) Direct materials, direct labour and direct expenses are charged for the entire batch.
3) Factory overhead is absorbed for the batch using an appropriate base (labour hours/machine hours/% wages).

Determination of unit cost:
- Total batch cost = Direct materials + Direct labour + Direct expenses + Absorbed overheads
- Unit cost = Total batch cost ÷ Number of units in the batch

Thus, batch costing helps to find economical batch-wise cost and then per-unit cost for pricing and control.

Question 11

What are the uses of job costing to management? (any three)

Accepted Answer

Job costing provides job-wise cost information that management uses for:

1) Quotation / tender pricing
- By estimating materials, labour, overhead absorption and profit, management can quote a competitive price and avoid under-quoting.

2) Profitability analysis
- Profit/loss can be measured for each job separately, helping identify high-profit and low-profit jobs/customers.

3) Cost control and variance analysis
- Estimated vs actual job cost comparison highlights wastage in materials, excess labour time, abnormal overtime/idle time, and overhead inefficiencies.

4) Performance evaluation and planning
- Job-wise cost data helps evaluate department efficiency, improve future estimates, and plan resource allocation/scheduling.

Therefore, job costing supports pricing, control, decision-making and performance evaluation.

Question 12

What is overhead absorption in job costing? Explain with a small illustration.

Accepted Answer

Overhead absorption means charging indirect costs (factory/works overheads) to jobs using a predetermined absorption rate because overheads cannot be directly traced to a single job.

Steps/idea:
1) Estimate (budget) total factory overhead for a period.
2) Choose a suitable base (direct wages, labour hours, machine hours).
3) Compute absorption rate, e.g.,
- % of wages rate = (Budgeted factory OH / Budgeted direct wages) × 100
- Machine hour rate = Budgeted factory OH / Budgeted machine hours
4) Apply the rate to each job based on its actual base (wages/hours).

Illustration (% of wages):
If factory OH is absorbed at 80% of direct wages and Job A has direct wages of ₹10,000, then
Absorbed OH = 80% × 10,000 = ₹8,000.

This absorbed overhead is added to prime cost to obtain works cost. The difference between actual and absorbed overhead results in under/over absorption, which is treated separately.

Question 13

Prepare a job cost sheet and compute quotation for Job J-21: Direct material ₹30,000; Direct labour 400 hrs @ ₹50/hr; Direct expenses ₹2,000; Factory OH 80% of direct labour; Admin OH 10% of works cost; Profit 20% on cost. Show working.

Accepted Answer

Given:
- Direct material = ₹30,000
- Direct labour = 400 hrs @ ₹50/hr
- Direct expenses = ₹2,000
- Factory OH = 80% of direct labour cost
- Admin OH = 10% of works cost
- Profit = 20% on cost (i.e., on cost of sales)

Step 1: Direct labour cost
Direct labour = 400 × 50 = **₹20,000**

Step 2: Prime cost
Prime cost = Direct material + Direct labour + Direct expenses
= 30,000 + 20,000 + 2,000
= **₹52,000**

Step 3: Factory overhead and works cost
Factory OH = 80% of direct labour = 0.80 × 20,000 = **₹16,000**
Works cost = Prime cost + Factory OH
= 52,000 + 16,000 = **₹68,000**

Step 4: Administration overhead and cost of production
Admin OH = 10% of works cost = 0.10 × 68,000 = **₹6,800**
Cost of production = 68,000 + 6,800 = **₹74,800**

Assumption: No selling & distribution overhead is given, so
Cost of sales = Cost of production = **₹74,800**

Step 5: Profit and quotation
Profit (20% on cost) = 0.20 × 74,800 = **₹14,960**
Quotation/Selling price = 74,800 + 14,960 = **₹89,760**

Job Cost Sheet (summary):

| Particulars | Amount (₹) |
|---|---:|
| Direct material | 30,000 |
| Direct labour | 20,000 |
| Direct expenses | 2,000 |
| **Prime cost** | **52,000** |
| Add: Factory OH (80% of wages) | 16,000 |
| **Works cost** | **68,000** |
| Add: Admin OH (10% of works cost) | 6,800 |
| **Cost of sales** | **74,800** |
| Add: Profit (20% on cost) | 14,960 |
| **Quotation** | **89,760** |

Note for exams: If profit is ‘on sales’, the working changes. Here profit is clearly stated as ‘20% on cost’, so we multiply cost by 20%.

Question 14

Explain the procedure of job costing in detail and show how direct material, direct labour and overheads are recorded for a job.

Accepted Answer

Job costing procedure (long, exam-style):

1) Job order and job number
- On receipt of customer order, a Work Order/Job Order is issued to start work.
- A unique Job Number is allotted and a Job Cost Sheet is opened to collect costs job-wise.
- For quotation, an estimate may be prepared first; later actuals are compared.

2) Recording (charging) direct materials
- Materials required are issued from stores using a Material Requisition Note (MRN) mentioning the job number.
- The stores issues are priced and posted to the job cost sheet under ‘Direct materials’.
- If materials are returned, a Return Note is used and the job is credited.
- If scrap is generated and credited, it is shown as a deduction as per policy.

3) Recording direct labour
- Attendance is captured through time keeping; job-wise time is captured through time booking (job cards/time tickets).
- Wages are computed and labour cost is posted to the job cost sheet as ‘Direct labour’ if it is traceable.
- Indirect labour (supervisors, storekeepers) is not charged as direct labour; it is included in overhead.
- If overtime is worked specifically for the job, overtime premium may be charged to that job; otherwise treated as overhead.

4) Charging direct expenses
- Expenses that are specifically incurred for the job (special tool hire, design fee, royalty, testing charges) are charged directly to the job cost sheet.

5) Collection and absorption of overheads
- Overheads are first collected cost-centre wise (factory overhead, admin overhead etc.).
- A predetermined absorption rate is fixed (e.g., % of direct wages, labour hour rate, machine hour rate).
- Overhead absorbed for the job = rate × actual base of the job (wages/hours).
- The absorbed overhead is posted to the job cost sheet to obtain Works Cost and (if included) Cost of Production.

6) Completion, costing and pricing
- When the job is completed, total job cost is computed from the job cost sheet.
- Add profit (on cost or on sales, as specified) to arrive at quotation/selling price.

7) Closing and control
- Job is closed and actual cost is compared with estimated cost to identify inefficiencies (material wastage, excess labour time, abnormal overhead).
- Reports help in improving future estimates and controlling costs.

Thus, job costing records direct material/labour/expenses through source documents and charges overheads through absorption so that each job’s cost and profit can be measured accurately.

Question 15

Explain batch costing and EBQ concept. Why is batch size important? Give practical points.

Accepted Answer

Batch costing is a form of job costing where a batch of identical units is treated as one job. It is used where production is done in lots (e.g., 1,000 bolts, 500 pens).

1) Batch costing (meaning and working)
- A batch number is allotted; a batch cost sheet is opened.
- Direct materials, direct labour and direct expenses are charged to the batch.
- Factory overheads are absorbed using a suitable base (labour hours/machine hours/% wages).
- Total batch cost is computed and unit cost is found as:
  Unit cost = Total batch cost ÷ Units in the batch

2) EBQ (Economic Batch Quantity) concept
- EBQ is the batch size that minimises the total of:
  (a) Setup/setting cost per batch (cost of machine setup, tool changes, planning, start-up losses)
  and
  (b) Carrying/holding cost (storage, interest on working capital, insurance, risk of damage/obsolescence of finished goods).
- EBQ is conceptually similar to EOQ; larger batches reduce setups but increase holding cost.

3) Why batch size is important (practical exam points)
1) Cost minimisation: optimum batch reduces total setup + holding costs.
2) Production efficiency: fewer setups reduce downtime; too frequent setups increase idle machine time.
3) Inventory and working capital: large batches increase finished goods stock and block funds; small batches keep inventory low.
4) Delivery and lead time: batch size affects completion time and ability to meet delivery schedules.
5) Quality and control: very large batches may hide defects; reasonable batches allow better inspection and corrective action.

Hence, batch costing helps compute batch/unit cost, and EBQ helps decide an economical batch size for better cost control and operations.

Job Costing and Batch Costing: Procedure, Job Cost Sheet and Applications

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