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COSTING
PREPARED BY: Prabhjot Kaur
Ruchi Puri
Amanpreet Kaur
Poonam Nimoria
Kanupriya Malhotra
Mehak Jhamb
INDEX
• JOB COSTING
• CONTRACT COSTING
• PRACTICAL QUESTION
• DIFFERENCE
• EMPLOYMENT OF JOB COSTING
• APPLICATION OF JOB COSTING
JOB COSTING
CIMA defines it as:
“that form of specific order costing which applies when work is
undertaken to customers’ special requirements and each order is
of comparatively short duration (compared to those to which
contract costing applies). The work is usually carried out within a
factory or workshop and moved through processes and operations
as a continuously identifiable unit. The term may also be applied to
work such as property repairs and the method may be used in the
costing of internal capital expenditure jobs.”
Features:
•Costs of materials, labor and overheads accumulated
•Profit or loss determined
•Costs are estimated and price is quoted
OBJECTIVES OF JOB COSTING
•Finding out the cost of production
•More accurate estimates about the cost
•Control operational inefficiency
MATERIALS
LABOUR
- Labour employed or working at site are treated
as direct labour.
PLANT
- Plant specifically purchased for a contract.
- The services of a particular plant are required
only for a short period.
COMMON TERMS IN CONTRACT
COSTING
Escalation clause/material and labour
variance clause
A provision in a contract for adjustment
in prices quoted and accepted, in the event of
specified contingencies.
Avoid future disputes
Safeguarding principle for both contractor
and contractee
Work certified and
Payment-
• Progress payment
• Certificate stating satisfactory progress by
the contractee
or his nominee
• Retention money
TREATMENT
Contractee’s account dr.
To contract account
(being the value of work certified)
Bank account dr.
To contractee’s account
Second method
ASSETS AMOUNT
Work in progress:
Value of work certified XXX
Cost of work uncertified XXX
Less: Reserve for unrealised profit
(XXX)
Less:Amount received from
contractee(XXX) XXXXX
Work-in-progress Account
Particulars Amt Particulars Amt
XXXX XXXX
Profit on incomplete contracts:
Rules:-
•When work certified is less than 1/4th of
the contract price-
No portion of profit will be transferred to P&L
A/c.
•When work certified is more than 1/4th of
contract price but less than ½ of the
contract price-
1/3rd of the profit disclosed should be taken
to P&L A/c
• When work certified is more than ½ of
the contract price-
2/3rd of the profit disclosed should be taken to
P&L A/c
1500000 1500000
EXTRACTS FROM BALANCE SHEET
As on 31st March, 1994
LIABILITIES AMT ASSETS AMT
(Rs.) (Rs.)
Direct Wages Due 27000 Work-in-progress : Work
Certified 2000000
Work Uncertified 14900
2014900
Less : Reserve 166200
1848700
Less: Cash 1500000
Received 348700
Plant at site 170000
Material at site 20000
DIFFERENCE
JOB COSTING CONTRACT COSTING
Is carried in premises Contract work is carried out at site.
An order, unit, lot or batch of Each contract is a cost unit.
product maybe taken as cost unit. Most of the expenses are of direct
Cost is first allocated to cost center nature and are directly charged to
and then charged to individual jobs. respective contract accounts. Only
It is a system of costing in which the general overheads and head office
elements of cost are accumulated expenses are apportioned to
separately for each job or work individual contracts.
undertaken by an organization. The pricing is generally through
The process of jobs are fixed basing bidding and external forces have
on the cost and policy of the firm. major influence in fixing the offer
price.
The duration of job work is smaller.
Generally the contract work will take
The value of job work would be
more time to complete.
lesser
The contract works is bigger in nature
and the value of contract would also
be higher.
Employment of Job Costing
Job costing is employed (used) in the following
cases:-
Where the production is against the order of the
customer or jobs are executed for different
customers according to there specifications.
Where each job needs special treatment and no
two orders are necessarily alike.
There is no uniformity in the flow of production
from one department to another.
Where the work in progress differ from period to
period basis of the number of jobs in hand.
Application of Job Costing
Job costing is applicable to printing,
furniture, hardware, ship-building,
heavy machinery, general engineering
work, machinery tools, interior
decoration, repairs and other similar
work.
THANK
YOU