Job costing is the method of allocating production costs to specific jobs.

What is a job cost sheet?

A job cost sheet is prepared when the actual manufacturing costs are known. The information can be recorded in a job cost sheet which serves as a basis for charging stores, manufacturing, and administrative expenses to jobs.

What are some advantages of job costing?

Some of the main advantages of job costing over process costing include: job costing allocates overhead based on production volume, provides greater accuracy in assigning a cost to products, and differentiates between variable and fixed costs.

What information is included in a job cost sheet?

A job cost sheet should contain the job name, units started and units finished on each job, and direct materials used on the job

What is job-order costing?

Job order costing is a method of accounting for manufacturing costs using a specially designed set of accounts. It is based on the assumption that manufacturing activities are undertaken to fulfill specific customer orders or contracts.

Job Costing Examples, Practical Problems, and Solutions

Problem 1

Job No. 58 passes through three departments: X, Y, and Z. The following information is given regarding this job:

Required: Calculate the cost of Job No. 58 from the above figures.

Solution

Note: Calculation of overheads chargeable to Job No. 58 was made as follows:

Problem 2

The expenses shown below were incurred for a job during the year ended on 31 March 2019.

The total price for the above job was $180,000.

Required:

You are required to prepare a statement showing the profit earned from the job during the year ended 31 March 2019, as well as an estimated price of a job which is to be executed in the year 2019-20.

You should charge the same percentage of profit on sales as was the case for the the year 2019-20. Materials, wages, and chargeable expenses will be required at $50,000, $70,000, and $20,000, respectively, for the job.

The various overheads should be recovered on the following basis while calculating the estimated price:

Factory overheads as a percentage of direct wages

Administrative and selling and distribution overheads as a percentage of factory cost

Solution

Note: Calculation of overheads rates and percentage of profit on sales took place as follows:

Problem 3

M/s. Perfect Printers Ltd. operates a printing press. During November 2019, the plant was operating at full capacity. The material and labor costs of Job No. 101 and all other jobs worked on in November are shown below.

In addition to these costs, factory overheads incurred in November amounted to $44,000. Overhead is allocated to production based on direct labor costs.

Required:

Show the factory's profit or loss on Job No. 101 using two different methods of accounting for overtime premium. Assume that the contract price for the job is $40,000.

Indicate under what circumstances each method should be used.

State whether the profit or loss of the company during November would be affected by the choice of one method or another.

Solution

Factory Overhead Recovery Rate = (Factory Overhead / Direct Labor Cost) x 100
= (44,000 / 44,000) x 100 = 100%

Task 1A

If the overtime premium is fully charged to Job No. 101, the job cost sheet would be prepared as shown below.

Task 1B

If the overtime premium is charged pro-rata to all jobs, the job cost sheet would be prepared as follows:

Task 2

The overtime premium should be charged fully to Job No. 101 if it was a rush job and it was done at the request of the customer.

However, if the overtime work was due to limited production capacity and it was accidental that Job No. 101 was undertaken during the overtime, then the overtime premium should be charged pro-rata to all jobs.

Task 3

The company's profit and loss during November will be affected by the choice of any method if all the jobs performed during the month are not completed by the end of the month.

If the overtime premium is fully charged to Job No. 101 but is not completed by 30 November 2019, then the loss on the job will not be included in the account for November 2019.

Similarly, if the overtime premium is charged pro-rata to all the jobs, the profit or loss on any job that remains incomplete will be carried over to the next month.

Problem 4

The job details shown below were taken from the costing books of a contractor for the month of December 2019.

The respective job accounts showed the following balances in the contract ledger on 30 November 2019.

Job No. 201 = $321,580

Job No. 202 = $141,865

A certificate of completion was obtained for Job No. 201. Of the balance of this account standing on 30 November 2019, $61,500 was in respect of plant and machinery. The remainder consisted of wages and materials.

A machine costing $5,500, specially brought for this contract, was also sold for $2,000 in December 2019.

For the remainder of the balance on plant and machinery, $40,000 was used on the job for 8 months and the rest for 6 months.

Of the former, 50% was transferred to Job No. 202 and the whole of the remaining plant was returned to stores. The contract price for Job No. 201 was fixed at $375,000.

Required: