Cost Accounting Important Questions 2

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.