Job Costing & Process Costing

BAC 2, BAIT 2 & BTX 2 2023/24

Job Costing

Job costing is a costing approach used to determine the

cost of individual units or batches of products.
The approach is useful to organisations producing many
jobs during the same period, but each job have different
production requirements.
Examples…
In job order costing, direct costs are accumulated for
every single job and indirect costs (overhead) are
absorbed to units produced using predetermined overhead
absorption rate.
Job order Costing

Costs are accumulated by job and the job cost

sheet is the key document for accumulating costs.
Material requisitions are made for every particular
jobs
Labour time cards are used to record the time
spent by direct labour on each job
Overhead cost is apportioned to products using
predetermined overhead absorption rate
Job Card
The Job Card contains the following information
Order number
Job number
Customer description
Delivery date
Material cost to date
Overhead charged to the job
Miscellaneous expenses
Completion date
Invoice price
Profit summary
Job Card Template
Juice Vending Machines Manufacturing Co Ltd Order number 314/17
Job number 4/17-1 Price
Start date - 5th April Tzs 8,500,000
Customer: Mama Junior Delivery date 14 th July
Description Despatch Note
Project A Despatch Date 1st May Note - 1865
Date Reference Material Labour Overhead Miscellaneous

Summary Invoice number 1865 Dated 30th March

Material xxx
Labour xxx
Overhead xxx
Misc. xxx
Total cost xxx
Price xxx
Profit xxx
 Advantages of Job Costing
The profit or loss can be established on each job if the cost of producing the
job is set against the price of the product/job
Since cost are accumulated to jobs, the job cost card can reveal the amount of
cost incurred at any stage of production. Thus, excessive costs can be
identified at early stage.
It reveals any deviations between estimated cost of the product/job versus the
actual cost as production continues.
Large discrepancies may result into loss if actual cost exceed estimation while the price
is already agreed or losing competitiveness in the market. Thus, it force rethinking of
cost estimation.
It enables comparison to be made with performance of other jobs.
It is easy to use cost plus pricing approach to identify the selling price if it is
difficult to set selling price but this requires reliable costing records.
Limitations of Job Costing
It requires detailed record keeping, hence it consume
much time and it the approach becomes expensive
Keeping record for different jobs becomes complicates
especially when the organisation is engages in more than
one job at a time
The jobs produced can be charged with costs resulting
from inefficiencies instead of reflecting the resources
consumed
 Example 1 – Job costing
A factory is organised in two departments: assembly and painting. In the current
quarter fixed overhead is estimated to be TZS 4,500,000 in assembly department
and Tzs 5,000,000 in painting department. The company plans to use 5000 labour
hours in assembly department and 4000 machine hours in painting department.
The company has just received an order which requires material worth Tzs
2,000,000; 20 direct labour hours in assembly department and 10 machine hours in
painting department. Labours are paid at a rate of TZS 20,000 per hour.
Required
i. Calculate overhead rate for each department
ii. Calculate the total cost of job that has been received recently
iii. How much should the company charge if it requires a profit mark up of 15%
BATCH COSTING
A batch is group of similar products and it is treated as a single
cost unit.
Batch costing is useful for products that are produced in a group
and it is not convenient to track cost when they are separated
The cost of a batch are established in the same way as it is for a
job; whereas the cost of individual unit in a batch can be
established by dividing the total cost of a batch by the number of
units in a batch.
The optimum batch size can be established in the same way as it
is for economic order quantity. In this case, the benefits of
increasing the batch size are crosschecked against the cost of
Example 2 – Batch Costing
The following cot information relates to production of 750,000 packets of
Biscuits for the month July.
Material adding Dept Packaging Dept
Material 20,000,000 12,000,000
Labour 10,000,000 7,000,000
Overhead 15,000,000 14,000,000
The company pays labour at a rate of 10,0000 per hour.
The company sells biscuits in a box of 50 packets and it requires 10% mark
up in its pricing.
Required:
i. Calculate the cost per packet
ii. Calculate the price per box
Process Costing

Process costing is a costing approach used to

determine the unit cost of a product produced in
large number of identical products manufactured
using similar processes.
It is a system which is applicable to organisations
producing homogeneous products in large quantity
through a series of production processes.
Example…
Process Costing

In process costing costs are accumulated to every single

process/ department.
All costs involved, direct and indirect, are accumulated to
processes. Then, unit cost is obtained by dividing total
process cost with the number or units produced to get average
unit cost.
If some of the products are still in production process when
someone wants to establish cost per unit, such units are
converted to equivalent units based on their completion
percentage.
The departmental production report is used to show the
Comparison Between Job Costing and Process costing

JOB COSTING PROCESS COSTING

Production is done according to Production is continuos for future

customer order demand
Variety of products are manufactured Homogeneous products are
with different features manufactured in large quantity

Cost are accumulated to products Cost are accumulated to process and

and are not transferred to other transferred to another process along
products with the goods being manufactured

The value of any product which is Work in progress is very common and
incomplete can be easily established to determine its value requires
anytime calculations
Normal loss and Scrap
Normal loss is an expected waste arising from manufacturing process.
Waste is discarded item that has no value; it may include materials lost in production
process.
Since normal loss in inevitable in manufacturing process its cost is absorbed by the
good units:
Cost per Unit = Total process cost (including normal loss)
Good units
Scrap is discarded material, but has some recover value without further treatment or
can be re-used into production
Accounting treatment of scrap value depends with:
If the material can be re-used elsewhere;
Dr Store (for re-issue) xxx
Cr Process A/c xxx
If it is sold;
Dr Cash xxx
Cr Process A/c xxx
 Abnormal Loss and Abnormal Gain

Abnormal loss is a waste arising from production process, but beyond the
expectation (normal loss)
The abnormal loss gets a share of the production cost and its accounting
treatment is:
Dr Abnormal loss a/c xxx
Cr Process a/c xxx
If the loss experienced is below the expectation (normal loss), then it is
abnormal gain; its treatment is:
Dr Process a/c xxx
Cr Abnormal gain xxx
Thereafter the abnormal gain account will be closed to the income statement
NB: Calculation of unit cost considers only expected units, but the value of goods
transferred to another process includes abnormal gain (units); thus the process account
 Example 3 (a)
ManDisk ltd is a small company manufacturing flash discs through two
processes. In the first process, the inputs are mixed to produce stiff liquid for
use in the second process where flash discs are shaped. The ratio of the input
(material) to output (flash disc) in process two is 1 to 10. The company has
extracted the following costs for the month of April, 2023.
Process One:
Materials A 2,800kgs @ Tsh.12,000; Material B 1,200kgs @ Tsh. 8000
Labour Tsh. 8,400,000; Overhead Tsh. 5,600,000
Process Two: Labour Tsh. 9,600,000; Overhead Tsh. 7,500,000
Required:
i) Prepare process Accounts and find the unit cost of a flash disc if 40,000 flash
disc were produced in process two
ii) If the company expected the normal loss (with no scrap value) in process two
to be 5% of the inputs received from process one calculate unit cost
Example 3(a) Continues…
iii) If the company expected the normal loss (with scrap value of 1000/-
per unit of output) in process two to be 5% of the inputs received from
process one calculate unit cost
iv) If the company expected the normal loss in process two to be 5% of
the inputs received from process one, but the actual production was only
37,000 flash discs calculate unit cost while assuming scraped units have
no value
v) If the company expected the normal loss in process two to be 5% of
the inputs received from process one, but the actual production was only
37,000 flash discs calculate unit cost while assuming scraped units can be
sold for Tsh,1,000 per flash disc.
vi) If the company expected the normal loss in process two to be 5% of
the inputs received from process one, but the actual production was
Equivalent Units
As identified earlier, work in progress is very common in
process costing; hence by the time when someone wants
to establish unit cost some of the products might be
partially complete.
In order to consider these partially units in calculation of
unit cost, there is a need of using equivalent unit (EU)
concept. This concepts is used to convert the amount of
resources used so far in whole complete units
Thus, cost per unit will be obtained by dividing the total
process cost by equivalent units (whole units plus EU for
 Example 4 (b)
 FlashD ltd is a small company manufacturing flash discs through two processes. In the first
process, the inputs are mixed to produce stiff liquid for use in the second process where flash
discs are shaped. The ratio of the input (material) to output (flash disc) in process two is 1 to
10. The company has extracted the following costs for the month of May, 2021.
Process One:
Materials A 2,800kgs @ Tsh.12,000; Material B 1,200kgs @ Tsh. 8000
Labour Tsh. 8,400,000; Overhead Tsh. 5,600,000
Process Two:
Labour Tsh. 9,600,000; Overhead Tsh. 7,500,000
Required:
 i) The company expected the normal loss (with no scrap value) in process two to be 5% of the
inputs received from process one and at the end of the month when the company was about to
establish cost per flash disc 4,000 flash discs were not yet complete. They were 100% in
terms of materials and 70% complete in term of labour and overhead. Calculate cost per unit
of flash disc.
Considerations of Opening Work in Progress
Calculations of unit cost when there is opening work in progress requires
assumption on how the cost incurred in the previous period relating to
WIP should be treated.
The two methods/assumption which are used to deal with opening WIP
are FIFO and Averaging method
Under FIFO, the assumption is that those opening WIP are the first to be
accomplished before any other units; hence cost per unit are calculated
separately by adding the EU of the remaining part to the carried forward
cost to come up with unit cost for opening WIP
On the other hand, Averaging method do not distinguish finished good
either from previous period or from current period. Instead, it add the cost
incurred in the previous period with the cost incurred in the current period
then divides by finished good and EU of ending WIP
Example 4
During May 2022, process A of ABC Ltd manufactured 7000 units and
1000 units were still in process. The closing WIP consumed 100% of
materials and 40% of conversion costs.
The value of materials issued to process A in that month was Tsh.
8,000,000 while labour and overhead incurred were Tsh. 666,000 and Tsh.
592,000, respectively.
At the beginning of the month, there were 800 units in process which were
100% complete in terms of materials and half way in terms of conversion
costs. The value materials consumed was Tsh. 480,000 while for labour
and overhead were Tsh. 40,000 and Tsh.36,000, respectively.
Required:
i) Calculate the value of finished good unit using FIFO approach
ii) Calculate the value of finished good unit using Averaging approach
Cost of Production Report
It is the report showing the amount of cost incurred during
the period and how that cost is accounted for to the units
produced and WIP
There are five steps, which are:
Identifying units started to be produced
Determining the equivalent units
Determining production cost to be accounted for
Computing unit cost
Accounting for production costs