Transcript JOB COSTING - Carreograph

Cost Accounting
nd
(2
session)
Prof. Amit De
JOB COSTING
Job costing refers to the cost
procedure or system of cost
accumulation that ascertains the
costs of an individual job or work
order separately. A job represents or
constitutes the unit of costing.
TYPES OF PRODUCTION ACTIVITY
SUITABLE FOR JOB COSTING
1. Production consists of special jobs or projects
based on customer's specifications.
2. Production pattern is not repetitive and
continuous.
3. Virtually every job produced is somewhat
different.
4. Each job maintains its separate identity
throughout the production stage.
5. The different jobs are independent of each other.
BATCH COSTING
Batch
costing
is
essentially
a
variation of job costing. Instead of a
single
product
job,
a
units
number
are
of
similar
processed
manufactured in a group as a batch.
or
ECONOMIC BATCH SIZE
Economic Production Batch Size =
2C2Q
C1T
Where Q = total demand in time period T
C1 = holding costs per unit
C2 = set up cost per batch
TOTAL
COST
Rs.
SET-UP COST
O
q
BATCH SIZE
CONTRACT COSTING
Contract costing is a type of job
costing
in
which
constitutes a unit of cost.
contract
ESCALATION CLAUSE
Escalation clause is usually provided in
the contract as a safeguard against
likely changes in price and utilization of
material and labour. By adding this
clause, the contractor makes it known to
his
customer
that
price
quoted
is
dependent on prevailing market prices
of cost elements.
COST-PLUS CONTRACT
It is provided in the contract that
customer/contractee should pay to the
contractor actual cost of manufacture or
rendering services plus a stipulated
profit. The profit to be paid to the
contractor may be a fixed amount or it
may be a particular percentage of capital
employed.
PROFIT OF INCOMPLETE
CONTRACT
1.When work on contract has not reasonably
advanced, no profit is taken into account.
2.When work of a contract has reasonable
advanced, a particular percentage of notional
profit is credited to profit and loss account and
balance is carried forward as provision against
future losses, increase in price and other
contingencies.
When a contract has sufficiently advanced and
it is also not in final stages, following practices
are followed :
(a) If the work certified is more than ¼ but less
than half of the contract price, following
formula is used to determine the figures of
profit to be credited to profit and loss account:
1
3
X National Profit X
Cash received
Work certified
3. Where the contract is almost complete, an
estimated
total
profit
is
determined
by
deducting aggregate of cost to date and
estimated
additional
expenditure
from
contract price. A portion of this estimated total
profit is credited to profit and loss account.
Estimated total profit X
Work certified
Contract Price
WORK CERTIFIED AND WORK
UNCERTIFIED.
The work certified represents the
work approved by architect,
engineer or surveyor etc. of the
contractee. It is possible that a part
of the work remains to be
approved at the end of the
accounting period.
MARGINAL COSTING
Sales – Cost = Profit
or Sales – (Fixed cost+Variable Cost)=
Profit.
MARGINAL COST
CIMA defines marginal cost as “the
cost of one unit of product or service
which would be avoided if that unit
were not produced or provided.”
VARIABLE COST.
Variable cost is that part of total cost,
which changes directly in proportion with
volume.
FIXED COST.
It represents the cost which is incurred
for a period, and which, within certain
output tends to be unaffected by
fluctuations in output.
BREAK-EVEN POINT
Break even point is the point of sale at
which company makes neither profit nor
loss.
Contribution = sales – variable cost of sales
KEY FACTOR OR LIMITING
FACTOR.
There are always factors that do not lend
themselves to managerial control.
Key factor is the factor whose influence
must be first ascertained to ensure that
there is maximum utilization of resources.
BASIC MARGINAL COST
EQUATION
Sales – (Fixed costs + variable costs) = Profit
PROFIT/ VOLUME RATIO.
When the contribution from sales is
expressed as a percentage of sales value,
it is known as profit/volume ratio (or P/V
ratio).
IMPROVEMENT OF P/V RATIO.
(i)
Increase in sale price,
(ii)
Reducing marginal cost by efficient
utilization of men, material and
machines.
(iii) Concentrating on the sale of products
with relatively better P/V ratio. This will
help to improve overall P/V ratio.
MARGIN OF SAFETY.
Margin of safety represents the difference
between sales at a given activity and sales
at break-even point.
Sales – Sales at B.E.P = Margin of safety.
Margin of safety X P/V ratio = Profit
ANGLE OF INCIDENCE
The angle which the sales line makes
with the total cost lines, is known as
the angle of incidence. This angle
gives
the
pictorial
between profit and sales.
relationship