Chapter 9

Job, Batch & Service Costing Ibrahim Sameer (MBA - Specialized in Finance,

B.Com – Specialized in Accounting & Marketing)

Costing Methods

• A costing method is designed to suit the way

goods are processed or manufactured or the way

services are provided.

Job Costing

• Job costing is a costing method applied where

work is undertaken to customers’ special

requirements and each order is of comparatively

short duration.

• A job is a cost unit which consists of a single

order or contract.

• In job costing production is carried out in

accordance with the wishes of the customer.

Job Costing

• Job costing is appropriate where each cost unit is

separately identifiable (production relates to a

single order) & is of relatively short duration

(production of the product can be completed in one

accounting period).

Job Cost sheets/cards

• Costs for each job are collected on the job cost

sheet or job card.

• In job costing we usually carried out production in

accordance with the special requirements of

each customer, it is usual for each job to differ

in one or more respect from another job.

Job Cost Information

• Material costs for each job are determined from

material requisition notes. Labour times on each

job are recorded on a job ticket, which is then

costed and recorded on the job cost sheet.

Job Cost Information

• Some labour costs, such as OT premium or the

cost of rectifying sub-standard output, might be

charged either directly to a job or else as an OH

cost, depending on the circumstances in which the

costs have arisen. OH is absorbed into the cost of

jobs using the predetermined OAR.

Pricing the Job

• The usual method of fixing prices in a jobbing

concern is cost plus pricing.

• Cost plus pricing means that a desired profit

margin is added to total costs to arrive at the

selling price.

Job Cost

• In a typical job cost the following cost can be

included:

• Actual direct material cost

• Actual direct labour cost

• Absorbed manufacturing overheads.

Batch Costing

• Batch costing is similar to job costing in that each

batch of similar articles is separately identifiable.

• The cost per unit manufactured in a batch is the

total batch cost divided by the number of units in

the batch.

Batch Costing

• A batch is a group of similar articles which

maintains its identity during one or more stages of

production and is treated as a cost unit.

Service Costing

• Service costing can be used by companies

operating in a service industry or by companies

wishing to establish the cost of services carried out

by some of their departments. Service

organizations do not make or sell tangible goods.

Service Costing

• Service costing (or function costing) is a costing

method concerned with establishing the costs, not

of items of production, but of services rendered.

Specific Characteristics of

Services

• Specific characteristics of services:

• Simultaneity – service consumed at the same time.

• Heterogeneity – variation from one service to

another.

• Intangibility

• Perishability

Specific Characteristics of

Services

• Some more principles of service costing:

• In service costing it is difficult to identify many

attributable direct cost. Many cost must be shared

over several cost unit, hence there will be high

level of indirect costs as proportion to total costs.

• Composite cost units such as tonne-mile or

room-night are often used in service costing.

Unit Cost Measures

• The main problem with service costing is the

difficulty in defining a realistic cost unit that

represents a suitable measure of the service

provided. Frequently, a composite cost unit may be

deemed more appropriate. Hotels, for eg may use

the ‘occupied bed-night’ as an appropriate unit of

cost ascertainment and control

Unit Cost Measures

Cost per service unit = Total costs for period /

Number of service units in the period

Service Cost Analysis in Internal

Service Situations

• Service department costing is also used to

establish a specific cost for an internal service

which is a service provided by one department for

another, rather than sold externally to customer eg

canteen, maintenance.

Questions & Answers

Thank You

Ibrahim Sameer Seek knowledge from cradle to grave