Job, Batch and Service Costing
Job, Batch and Service Costing
Job, Batch and Service Costing
Code BA2/KS/07
Job, Batch and Service Costing
Organisations are different from each other due to number of reasons.
• Legal situation
• Organisations are made up of different individuals
• Organisations engage in different activities
Based on the activities undertaken, organisations can have their own basic cost accounting system.
• Job manufacturing – Job costing
• Batch costing – Batch costing
• Contract costing – Contract costing
• Process manufacturing – Process costing
• Service providers – Service costing
Note: Job costing, batch costing and contract costing are considered to be as specific order costing.
Job costing
Job costing is the costing method used by organisations which are engaged in one-off job activity. Job
costing applies where work is undertaken according to specific orders from customers to meet their
own special requirements.
Eg:- Customer requests to manufacture of a single machine to the customer’s own specification, repair
of a vehicle or preparation of a set of accounts for a client.
Direct labour
Time sheets are used to collect the information of direct labour costs. Time sheet is a record of work
done by each employee.
Production overheads
Overhead absorption rates are used where absorption costing is the overhead cost accounting system.
Non-production overheads
Non-production overheads are charged to the job based on percentages. (Percentages applied
depends on the decision makers’ experience)
Work-in-progress
Work-in-progress are the unfinished goods which are neither raw material nor finished goods.
• Opening work-in-progress:
Closing WIP of a period becomes the opening WIP for the next period. Opening WIP of a specific
job will be added to the cost incurred during the period to cost that job.
• Closing work-in-progress:
This is the estimated goods at the end of a period. If a specific job is not completed at the end of
the period, it will be considered as closing WIP.
Budgeted information: -
Department Budgeted production Basis of production
overhead overhead absorption
Batch costing is the costing method used by organisations which are engaged in lot/batch production
activity. Batch cost is calculated very similar to that of job costing. The only difference being cost
accumulated is not for one product or service, but for a batch of products.
Example – A batch of manufactured shoes
Assume, total cost of the batch is $59,520 and selling price of the batch is $79,360. The order given is
for 400 units of similar items. Calculate the cost and selling price of each item.
• Cost of an item = 59,520/400 = $148.8 per unit
• SP of an item = 79,360/400 = $198.4 per unit
Service Costing
Service organisations are broadly divided into;
• Profit seeking
• Not for profit
• Economy (Input measure): This measures the relationship between money spent and the inputs.
• Efficiency (Input to output measure): This measure whether the maximum output is being
achieved for the resources used.
• Effectiveness (Output with objectives): This measures to what extent the outputs generated
achieve the objectives of the organization.
Responsibility Centres
With decentralisation departments or units having their own decision-making powers is commonly
referred to as responsibility centres. An individual manager or management team is responsible for
that unit’s performance.
2. Profit centre
If a manager is responsible for revenue as well as costs, the responsibility is a profit centre.
Eg – Supermarket outlets, bank branches etc.
3. Investment centre
If a manager is responsible for investment decisions as well as for revenues and costs, the
responsibility centre is an investment centre.
Eg – strategic business units (SBU) of a large organisation
Customer perspective
This is an attempt to measure customers’ view of the organisation by measuring customer satisfaction.
• Number of customer complaints
• % of returning customers
• New customers as % of total customers
The overheads for the period were $140,000, exactly as budgeted. Job 1 Job 2 were incomplete at the
end of the period.
2. Job 3 was completed during the period and consisted of 1,500 identical components. The company
adds 25% to total production costs to arrive at a selling price.
What is the selling price of a component?
A. $21.04
B. $24.58
C. $37.71
D. $40.22
3. A retailer buys in a product for $50 per unit and wishes to achieve a gross profit % of 40%. The
selling price should be:
A. $70.00
B. $83.33
C. $90.00
D. $125.00
5. During a period 3,000 consulting hours were charged out in the ratio of 1 senior to 3 junior hours.
Overheads were exactly as budgeted.
Calculate the gross profit for the period $............................
6. The total estimated cost of a job $2,080. The company requires a profit margin of 20%. The price
to be quoted for the job is $..................................
8. Calculate the price to be quoted for a batch of 200 cards. $........................ (to the nearest $)
Variable costs are $300,000 for the company as a whole and are estimated to be incurred in the ratio
of 1:4:5 respectively for A, B and C.
The fixed costs which are not directly identifiable are $75,000. These are shared equally between the
three divisions.
13. Which TWO of the following are contained in a typical job cost sheet?
A. Actual material cost
B. Actual manufacturing overheads
C. Absorbed manufacturing overheads
D. Budgeted labour cost
E. Budgeted material cost
14. Job 198 requires 380 active labour hours to complete. It is expected that there will be 5% idle
time. The wage rate is $6 per hour. The labour cost of Job 198 is:
A. $2,166
B. $2,280
C. $2,394
D. $2,400
15. The following information relates to job 2468, which is being carried out by AB Co to meet a
customer’s order.
Department A Department B
Direct materials consumed $5,000 $3,000
Direct labour hours 400 hours 200 hours
Direct labour rate per hour $4 $5
Production O/H per direct $4 $4
labour hour
16. A company calculates the prices of jobs by adding overheads to the prime cost and adding 30% to
the total costs as profit. Job number Y256 was sold for $1,690 and incurred overheads of $694.
What was the prime cost of the job?
A. $489
B. $606
C. $996
D. $1,300
17. In which TWO of the following situation(s) will job costing normally be used?
A. Production is continuous
B. Production of the product is of a relatively short duration
C. Production relates to a single special order
D. Production is over several accounting periods
18. JW Co is planning to launch a new wall paint for bathrooms and kitchens called WR1. This will be
manufactured in batches of 100,000 cans.
The following cost estimates have been produced per batch of WR1.
Paint WR1 cost estimates $
Direct material per batch 103,000
Direct labour per batch 105,000
Variable production overheads per batch 84,000
Fixed production overheads per batch 34,000
Administration, selling and distribution costs per batch 41,000
Total costs 367,000
Calculate the estimated full absorption cost of one BATCH of WR1
$.....................
Calculate the estimated marginal production cost of one CAN of WR1 (round to 2 decimal
places). $.....................
A. 1 only
B. 1 and 2 only
C. 1 and 3 only
D. 1, 2 and 3
20. Which of the following organisations should NOT be advised to use service costing?
A. Distribution service
B. Hospital
C. Maintenance division of a manufacturing company
D. A light engineering company
21. Calculate the most appropriate unit cost for a distribution division of a multinational company
using the following information.
Miles travelled 636,500
Tonnes carried 2,479
Number of drivers 20
Hours worked by drivers 35,520
Tonne-miles carried 375,200
Costs incurred $562,800
A. $0.88
B. $1.50
C. $15.84
D. $28,140
24. Which THREE of the following would be suitable cost units for a hospital?
A. Patient/day
B. Operating theatre hour
C. Ward
D. X-ray department
E. Outpatient visit
25. Match up the following services with their typical cost units.
Service Cost unit
Hotels
Education
Hospitals
Catering organisations
A. Meals served
B. Patient day
C. Full-time students
D. Occupied bed-night
26. If sales are $25,500, and cost of sales are $21,250, what is the gross profit percentage?
A. 16.67%
B. 20.00%
C. 83.33%
D. 120.00
The statement of financial position at 30 September 20X8 showed the following capital:
$’000
Share capital 8,000
Retained earnings 1,200
9,200
10% loan stock 2,000
11,200
What is the return on capital employed for the year ended 30 September 20X8?
A. 5.88%
B. 13.04%
C. 10.71%
D. 10.87%
28. A government body uses measures based upon the “three Es” to the measure value for money
generated by a publicly funded hospital. It considers the most important performance measure to
be “cost per successfully treated patient”.
Which of the three Es best describes the above measure?
A. Economy
B. Effectiveness
C. Efficiency
D. Externality
30. Which TWO of the following statements regarding the balanced scorecard are correct?
A. The learning and growth perspective focuses on the need for continual improvement of
existing products and techniques
B. The goal of reducing staff turnover would be used in the learning and growth perspective
C. The balanced scorecard uses only non-financial performance measures
D. The goal of increasing return on capital employed would be used in the financial perspective
E. The four perspectives in the balance scorecard are customer, internal effectiveness, profit and
learning and growth
32. Which of the following would be the most appropriate cost unit for a distribution company?
A. Miles travelled
B. Tonnes carried
C. Tonne miles
D. Packages delivered per driver
33. R is the manager of production department M in a factory which has ten other production
departments. After department M, all production goes into other factory departments to be
completed prior to being dispatched to customers.
35. Calculate the operating profit margin % for both companies (to 1 decimal place)
CDE………………%
PQR……………..%