job order cost system

UNIVERSITY OF MYSORE

UNIVERSITY OF MYSORE

PRESENTED TO:C.VIJAY KUMAR.

FACULTY OF COMMERCE DEPT.

UNIVERSITY OF MYSORE

PRESENTED TO:C.VIJAY KUMAR.

FACULTY OF COMMERCE DEPT.

UNIVERSITY OF MYSORE

JOB ORDER COST SYSTEM

Contents:

Introduction Features of job order cost system Objectives of job order cost system Pre-requisites of job order costing Advantages and disadvantages Procedure of job order cost system Conclusion

INTRODUCTION:

Job costing is that specific order costing which applies where the work is undertaken as an identifiable unit such as:

•Manufactures of products to customers’ specific requirements.•Fabrication of certain materials where row materials are supplied by the customers.•Repairs are done within a factory or at customers’ premises.•Manufacturing goods are not for stock purposes but for immediate delivery, once these are completed in all respects.•Internal capital expenditure jobs etc.

FEATURES OF JOB ORDER COSTING:

• The production is generally against customers’ order but not for stock.

• Each job has its own characteristics and needs special treatments.

• Each job is treated as a cost unit under this method of costing.

• Each job is distinctively indentified by a production order throughout the production stage.

• The cost of production of every job is ascertained after the completion of the job.

• The work-in-progress differs from period to period according to the number of jobs in hand.

OBJECTIVES OF JOB ORDER COSTING:

• It helps to find out the cost of production of every job or order and to know the profit or loss made on its execution.

• It helps the management to make more accurate estimates for costs of similar jobs to be executed in future on the basis of past records.

• It helps the management to control the operational inefficiency by making a comparison of actual costs with estimated ones.

• It helps the management to provide a valuation of work-in-progress.

PRE-REQUISITES FOR JOB ORDER COSTING:

• A sound system of production control. • Comprehensive works documentation, typically this

includes: work order and/ or operation tickets, bills of materials and/or materials requisitions, jig and tool requisitions etc.

• An appropriate time booking system using either time sheets or piece work tickets.

• A well organized basis to the costing system with clearly defines cost centers, good labour analysis, appropriate overhead absorption rates and a relevant issue pricing system.

ADVANTAGES OF JOB ORDER COST SYSTEM:• It records costs more accurately and facilitates cost control

by comparing actual with estimates.• It enables the management to ascertain which of the jobs

are more profitable than the others, which are less profitable and which are incurring losses.

• It provides a basis for estimating the cost of similar jobs taken up in future and thus helps in future production planning.

• Determination of predetermined overhead rates in job costing necessitates the application of a system of budgetary control of overheads with all its advantages.

• It is useful in quoting cost plus contract.

DISADVANTAGES OF JOB ORDER COST SYSTEM:

Following are the disadvantages of the job order cost accounting:• It involves a great deal of clerical work in recording daily

the cost of materials issued wages expanded and overheads chargeable to each job or work order which adds to the cost of cost accounting. Thus it is expensive.

• The scope of committing mistakes is enough as the cost of one job may be wrongly posted to the cost of the other job.

• Cost comparison among different jobs becomes difficult especially when drastic changes take place.

• Determination of overhead rates may involve budgeting of overhead expenses and the bases of apportionment and absorption but unless such budgeting is complete i.e., extended to material, labour and expenses, its advantages are considerably reduced.

• Job costing is historical costing which ascertains the cost of a job or product after it has been manufactured. It does not facilitate control of cost unless it is used with standard or estimated costing.

PROCEDURE OF JOB ORDER COST SYSTEM:Jobs executed during a certain time period are

bound to have different units of production. Unit cost is determined by diving total cost by the number of units or a volume of goods produced there under. The procedure for job order cost system may be summarized as follows:

•RECORDING OF COSTS:

Job Cost Sheet/Card is maintained for each job. This is a document which is used to record direct material, direct labour and overheads applicable to respective jobs.

PROCEDURES:• Receiving an enquiry.• Estimation of the price of the job.• Receiving an order.• Production order.• Recording of costs.• Completion of job.• Profit or loss on job.

JOB COST SHEET / CARD

Customer name: ……………………………………. Job no.And address: …………………………………………. Date started:Description: ………………………………………….. Date promised:Quantity: ………………………………………………. Date finished:Special remakes if any: ……………………………………………………………

Dept Materials Labour Overheads

Qty Rate Amt Hrs

Rate Amt Hrs Rate Amt

123Cost SummaryDepartments Materials Labour Overheads Total Actual Estimate

123Job Order PriceProfit (Loss)

Discrepancies between actual and estimated costs are explained below:•……………………………………………………………….. •……………………………………………………………….. •………………………………………………………………..

CONCLUSION:

REFERENCE: