10.3 Job and Batch Costing: Job Cost Cards, Job Accounts and Pricing a Job
Key Takeaways
Job costing accumulates costs for an individual customer order, using material requisitions, time records and predetermined overhead absorption rates.
Each job is a sub-account of work-in-progress; when a job is completed and delivered, its cost is transferred to cost of sales (or to finished goods if it is held).
Batch costing treats a batch of identical units as a job and calculates cost per unit as total batch cost divided by the number of good units produced.
A job quotation adds non-production overheads to production cost to find total cost, then adds profit as either a mark-up on cost or a margin on price.
Why this topic is examined
Syllabus area C4(c) asks you to prepare appropriate accounts for job and batch costing. Questions ask you to complete a job cost card, calculate the cost or price of a job, find a batch cost per unit, or identify the correct accounting entry when a job is finished. Process costing and contract costing are not part of the BA2 syllabus.
When job and batch costing are used
| Method | Cost unit | Typical industries |
|---|---|---|
| Job costing | An individual order made to a customer's specification | Printing, engineering workshops, vehicle repairs, building work, accountancy and consultancy assignments |
| Batch costing | A batch of identical items made together | Pharmaceuticals, clothing, bakery products, electronic components |
Both are forms of specific order costing: each job or batch has its own identity, and costs are collected separately for it.
The job cost card and its source documents
Each job is given a number and a job cost card (or job cost sheet) on which costs are accumulated:
| Cost element | Source document | How it is valued |
|---|---|---|
| Direct materials | Materials requisition (and materials returned notes) | Issue price per the inventory valuation method |
| Direct labour | Job time sheets or time records | Hours worked on the job × hourly rate |
| Direct expenses | Invoices for items bought specifically for the job | Actual cost |
| Production overhead | Hours recorded on the job | Predetermined absorption rate per cost centre (Section 3.2) |
| Non-production overhead | Not recorded until the job is complete | Often a percentage of production cost |
Note
Materials returned to stores from a job reduce that job's material cost. Overtime premium is normally treated as an overhead, unless the overtime was worked specifically at the customer's request for that job, in which case it is a direct cost of the job.
Worked example: Job 247
A workshop has been asked to quote for Job 247.
| Item | Details |
|---|---|
| Direct materials | 400 kg issued at $6 per kg; 20 kg later returned to stores |
| Direct labour, Department A | 30 hours at $15 |
| Direct labour, Department B | 20 hours at $18 |
| Direct expense | Hire of a special tool: $200 |
| Overhead, Department A | Absorbed at $12 per direct labour hour |
| Overhead, Department B | Absorbed at $20 per machine hour; the job uses 25 machine hours |
| Non-production overhead | 20% of production cost |
| Pricing policy | 25% margin on selling price |
Job cost card
| Job 247 | $ |
|---|---|
| Direct materials (400 kg × $6) | 2,400 |
| Less materials returned (20 kg × $6) | (120) |
| Direct labour: Dept A (30 × $15) | 450 |
| Direct labour: Dept B (20 × $18) | 360 |
| Direct expense: tool hire | 200 |
| Prime cost | 3,290 |
| Production overhead: Dept A (30 × $12) | 360 |
| Production overhead: Dept B (25 × $20) | 500 |
| Total production cost | 4,150 |
| Non-production overhead (20% × $4,150) | 830 |
| Total cost | 4,980 |
| Profit (balancing figure) | 1,660 |
| Selling price ($4,980 ÷ 0.75) | 6,640 |
Check: profit of $1,660 ÷ price of $6,640 = 25%. A 25% mark-up on cost would have given $6,225, so reading "margin" correctly matters. (Section 4.3 covers mark-ups and margins in detail.)
Job accounts in the ledger
In an integrated system (Section 10.1), each job is effectively a sub-account of the WIP control account:
| Event | Debit | Credit |
|---|---|---|
| Direct materials issued to Job 247 | Job 247 (WIP) | Raw materials control |
| Materials returned from Job 247 | Raw materials control | Job 247 (WIP) |
| Direct labour charged to Job 247 | Job 247 (WIP) | Wages control |
| Direct expense for Job 247 | Job 247 (WIP) | Payables |
| Overhead absorbed by Job 247 | Job 247 (WIP) | Production overhead control |
| Job 247 completed and delivered | Cost of sales | Job 247 (WIP) |
| Invoice raised for Job 247 | Receivables | Sales |
If a completed job is held before delivery, its cost is transferred to finished goods first. The total of all incomplete jobs at the period end equals the closing WIP balance.
Job 247 account
| Debit | $ | Credit | $ |
|---|---|---|---|
| Raw materials | 2,400 | Raw materials (returns) | 120 |
| Wages (Depts A and B) | 810 | Cost of sales (on completion) | 4,150 |
| Payables (tool hire) | 200 | ||
| Production overhead absorbed | 860 | ||
| Total | 4,270 | Total | 4,270 |
Non-production overhead is charged to the statement of profit or loss as a period cost; it is included in the quotation to make sure the price covers it, but it is not part of the job's inventory value.
Batch costing
In batch costing, the batch is treated as a job. Costs are collected on a batch cost card, and the cost per unit is found at the end:
Worked example: batch of circuit boards
A batch of 2,000 circuit boards incurs:
| Batch 88 | $ |
|---|---|
| Direct materials | 3,600 |
| Direct labour (70 hours × $20) | 1,400 |
| Machine set-up cost | 300 |
| Production overhead (70 hours × $25) | 1,750 |
| Total batch cost | 7,050 |
Set-up costs are incurred once per batch however many units are made, so larger batches spread set-up cost over more units and reduce the cost per unit. If 50 boards failed inspection and were scrapped with no value, the cost of the 1,950 good boards would be $7,050 ÷ 1,950 = $3.615 each.
Using job costs for control and pricing
- Quotations: estimated job costs underpin prices. Past job cards help estimate new jobs.
- Profitability: comparing actual job cost with the price charged shows which jobs and customers are profitable.
- Control: comparing actual job cost with the estimate highlights overruns in materials or hours while the job is in progress.
Tip
Build the job cost card in the order prime cost, production cost, total cost, price. Most wrong answers come from applying the non-production percentage to prime cost instead of production cost, or from confusing margin with mark-up.
Job 742 has direct materials of $8,000, direct labour of $5,000 and absorbed production overhead of $3,000. Non-production overhead is added at 25% of production cost, and the company prices jobs to earn a 20% margin on selling price. What is the price of Job 742?
$20,000
$24,000
$26,667
$25,000
Job 315 has been completed and delivered to the customer. In an integrated accounting system, what entry records the transfer of its production cost?
Debit cost of sales; credit work-in-progress (Job 315)
Debit work-in-progress (Job 315); credit cost of sales
Debit finished goods; credit cost of sales
Debit receivables; credit work-in-progress (Job 315)
A batch of 5,000 units incurs direct materials of $6,000, direct labour of $4,500, set-up costs of $500 and absorbed production overhead of $3,000. What is the cost per unit of the batch?
$2.10
$2.80
$3.00
$2.70
Sections you finish are checked off in the contents.