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Job, Batch Costing

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Job costingGoods produced and works done as per customers' order are called job. Generally, the job order costing system is used only when the products manufactured are sufficiently different from each other. Therefore, the costing method designed to determine the cost of a job is very essential. Job order costing is the costing system that determines the cost of the jobs received from the client. BATCH COSTING

The term batch refers to the lot in which the articles are to be manufactured. Whenever a particular product is required, one unit of such product is not produced but a lot of say 500 or 1000 units of such product are produced. It is therefore also known as Lot Costing. This method of costing is used in case of pharmaceutical or drug industries, ready-made garment factories, industries manufacturing component parts of radio sets, television sets, watches, etc.Just-in-time (JIT) manufacturing is a production model in which items are created to meet demand, not created in surplus or in advance of need. The purpose of JIT production is to avoid the waste associated with overproduction, waiting for demand and excess inventory.Total Quality Management (TQM) is a comprehensive and structured approach to organizational management that seeks to improve the quality of products and services through ongoing refinements in response to continuous feedback.Significance of Optimal batch quantity" or economic production quantity Economic Batch Quantity in TQMoptimal batch quantity" or economic production quantity, is a measure used to determine the quantity of units that can be produced at minimum average costs in a given batch or production run. Economic Production Quantity model (also known as the EPQ model) is an extension of the Economic Order Quantity model. The Economic Batch Quantity model, or production lot-size model, is similar to the EOQ model in that we are attempting to calculate an optimum for the batch quantity we have to produce.

PROCESS COSTING

Process costing is a method of costing used mainly in manufacturing where units are continuously mass-produced through one or more processes. Examples of this include the manufacture of erasers, chemicals or processed food.Process costing is a method of costing under which all costs are accumulated for each stage of production or process, and the cost per unit of product is ascertained at each stage of production by dividing the cost of each process by the normal output of that process. Output of one process become raw material of another process .The output of the last process is transferred to finished stock.

Normal lossThis is the term used to describe normal expected wastage under usualoperating conditions. This may be due to reasons such as evaporation, testingor rejects.Abnormal lossThis is when a loss occurs over and above the normal expected loss. This maybe due to reasons such as faulty machinery or errors by labourers.Problem No.1Following figures show the cost of a product passes through 3 processes. In March, 1000 units were produced. Prepare the process accounts and find out output of each process.

Overhead expenses were Rs.12,000 and it should be apportioned on the basis of wages.Process 1Rs.Process 2Rs.Process 3Rs.Raw materialsWagesDirect expenses50,00030,000 7,00030,00025,000 3,00020,00025,000 5,000Ratio of wages = 30,000:25,000:25,000(process I,ii,iii)= 6:5:5 = 6/16 : 5/16 : 5/16

Process I Account

ParticularsUnits AmountParticularsunitsAmountTo Raw materialsTo wagesTo Direct expensesTo overheads ( basis of wages)12,000x6/161,00050,00030,000 7,000 4,500By process II a/c ( Bal.fig output transferred to process II at Rs.91.50 per unit)

91,500/1000 = 91.501,000(problem)91,500 (BF)1,00091,5001,00091,500Ratio of wages = 30,000:25,000:25,000 ( process I,ii,iii)= 6:5:5 = 6/16 : 5/16 : 5/16Process II AccountParticularsUnits AmountParticularsunitsAmountTo process I a/c ( output transferred from process I)To Raw materialsTo wagesTo Direct expensesTo overheads ( basis of wages)12,000x5/161,000

91,50030,00025,000 3,000 3,750By process IIIa/c ( Bal.fig output transferred to process IIIat Rs.153.25 per unit)

1,53,250/1000 = 153.251,000(problem)1,53,250 (BF)1,0001,53,2501,0001,53,250Ratio of wages = 30,000:25,000:25,000 ( process I,ii,iii)= 6:5:5 = 6/16 : 5/16 : 5/16Process III AccountParticularsUnits AmountParticularsunitsAmountTo process IIa/c ( output transferred from process II)To Raw materialsTo wagesTo Direct expensesTo overheads ( basis of wages)12,000x5/161,000

1,53,250 20,000 25,000 5,000 3,750By Finished stock ( Bal.fig output at Rs.207 per unit)

2,07,000/1000 = 2071,000(problem)2,07,000(BF)In iii process bal.fig should be By finished stock /output because there is no next process1,0002,07,0001,0002,07,000

Problem No.2A product passes through three processes X, Y and Z to its manufacture. From the following details, ascertain the cost of the product (unit cost) at the end of each stages of production.

Process XRs.Process YRs.Process ZRs.Raw materials(10,000 units for X, should be mentioned FOR process X, but same units will continue in next process. But units should not be mentioned again)WagesManufacturing expensesOutput in unitsopening stock ( Rs.4.5 per unit for y and 10 per unit for z)Closing stock ( Rs.4.5 per unit for y and 10 per unit for z)

25,000

15,000 5,00010,000-----------

------------30,000

20,000 8,00011,200 7,000 5,000 20,000

10,000 7,00013,000 5,000 3,000Process X Account

ParticularsUnits AmountParticularsunitsAmountTo Raw materialsTo wagesTo Manufacturing expenses10,00025,00015,000 5,000 By process Y a/c ( Bal.fig output transferred to process Y at Rs.4.5 per unit)

45,000/10000 = 4.510,000(problem)45,000 (BF)10,00045,00010,00045,000Process Y Account

ParticularsUnits AmountParticularsunitsAmountTo opening stock(@Rs.4.5 per unit)To process X a/c ( output transferred from process x)To Raw materials(note)To wagesTo Manufacturing expenses 7,00010,00031,50045,000

30,000 20,000 8,000 By closing stock (at Rs.4.5 per unit)By process Z a/c ( Bal.fig output transferred to process Z at Rs.10 per unit)1,12,000/11200 = 10By wastage (amt. need not be mentioned as it is part of production and covered in output. ) 5,000(prob)11,200(problem)

800(bf)22,500

1,12,000 (BF)

-------17,0001,34,50017,0001,34,50014

In case of process y and z, for To raw materials, units need not be mentioned because they are used from previous process tranferred output considered as raw materials. However in the first process X, units 10,000 should be mentioned.will be considered as consumptionin next process. Howver the amount may increase as they are in different process.Process Z Account

ParticularsUnits AmountParticularsunitsAmountTo opening stock(@Rs.10 per unit)To process Y a/c ( output transferred from process y)To Raw materials(note)To wagesTo Manufacturing expenses 5,00011,20050,000112000

20,000 10,000 7,000 By closing stock (at Rs.10 per unit)By production( Bal.fig output at Rs.13per unit)1,69,000/13000 = 13By wastage (amt. need not be mentioned as it is part of production. ) 3,000(prob)13,000(problem)

200(bf)30,000

1,69,000 (BF)

-------16,20019900016,2001,99,00016Problem No.5In process A,(may be next process) 1000 units were introduced at a cost of Rs.20,000, the other expenditure incurred in the process were materials Rs.10,000 and wages Rs.5,000. 10% is the normal loss during production and possess a scrap value of Rs.3 each. The output of process A was only 800 units. Find out the value of Abnormal loss and also prepare the process A a/c to know the cost of output transferred to next process.Process A Account

ParticularsUnits AmountParticularsunitsAmountTo units introducedTo Raw materialsTo wages 1,000 20,00010,000 5,000 By normal loss ( 10% of 1000 units at Rs.3 scrap price)By Abnormal loss (w.note)By next process ( Bal.fig output transferred to next process )

100

100

800(B.f) 300

3,855.55

30,844.45 (BF) 1,00035,000 1,00035,000Calculation of Abnormal lossUnits of abnormal loss = (Total units-10% of normal loss)- output = (1000 100) 800 = 900 800 = 100

Value of abnormal loss =

Normal cost of normal production______________________________ x Abnormal loss (units) Normal output units

Calculation of Normal cost of normal productionNormal output in units = units introduced normal loss = 1000 100 = 900 units

Normal cost = cost of inputs ( value of units intro 20,000+mat 10,000+wages 5000) introduced cost of normal loss = 35,000 100unitsx3 = 35,000 300 = 34,700

Value of abnormal loss =

Normal cost of normal production Rs.34700______________________________ x Abnormal loss (units) 100 Normal output 900 units

= Rs.3,855.55

Problem No.71000 units was introduced in a process at a cost of Rs.1,850. The normal process loss is 10% of production. It is ascertained that the actual process loss was of 150 units. The scrap of normal loss is sold to a contractor at Re.0.50 per unit. . You are required to prepare:Process account

Process Account

ParticularsUnits AmountParticularsunitsAmountTo units introduced 1,000 1,850 By normal loss ( 10% of 1000 units at Re 0.50 scrap price)By Abnormal loss (w.note)By next process ( Bal.fig output transferred to next process )

100

50

850(B.f) 50

100

1,700 (BF) 1,0001,850 1,0001,850Calculation of Abnormal lossUnits of abnormal loss = Total units- ? % of normal loss- output output is not givenWhen the output is not given, it can be calculated as follows:actual loss in units - Normal loss in units = 150 units 10% of 1000 = 150 100 = 50 units

Value of abnormal loss =

Normal cost of normal production______________________________ x Abnormal loss (units) Normal output units

Calculation of Normal cost of normal productionNormal output in units = units introduced normal loss = 1000 100 = 900 unitsNormal cost = cost of inputs ( directly amount is given in the problem) introduced cost of normal loss = 1,850 100unitsx0.50 = 1,850 50 = 1,800

Value of abnormal loss =

Normal cost of normal production Rs.1,800______________________________ x Abnormal loss (units) 50 Normal output 900 units

= Rs.100

Problem No.9In process Y, 75 units of a commodity were transferred from process X at a cost of Rs.1,310. The labour and overhead expenses incurred by the Process were Rs.190. 20% of the units entered are normally lost and sold @ Rs.4 per unit. The output of the process was 70 units. Normal cost of normal output is Rs.1,440. Prepare process Y a/cProcess Y Account

ParticularsUnits AmountParticularsunitsAmountTo PROCESS X A/CTo labour and overhead expenses To Abnormal gain a/c(W.note) 75

10 1,310 190 240By normal loss ( 20% of 75units at Rs.4 scrap price)By next process ( Bal.fig output transferred to next process )

15

70(B.f) 60

1,680 (BF) 851,740 851,740Calculation of abnormal gain ( because actual output is more than normal output)= Normal cost of normal production______________________________ x Abnormal gains (units) Normal output units

Normal cost of normal production is available in the problem.Calculation of Normal output units and Abnormal gains (units)Units introduced 75Normal loss in units 15 as per the problem ie 20% of 75 unitsNormal output 60 unitsActual output 70 units as per the problemAbnormal gain 10 units ( because actual output is more than normal output)Calculation of abnormal gain ( because actual output is more than normal output)= Normal cost of normal production 1,440______________________________ x Abnormal gains (units)10 Normal output units 60

= Rs.240