Job and Batch Costing Questions and Answers

Job and Batch Costing Questions and Answers

SECTION – A

Question 1.
What is job costing?
An order-specific costing technique, used in situations where each job is different and is performed to the customer’s specifications is called job costing. It involves keeping an account of direct and indirect costs.

Question 2.
What is meant by job cost sheet?
Answer:
Job cost sheet is a document used to record manufacturing costs and is prepared by companies that use job-order costing system to compute and allocate costs to products and services.

Question 3.
Distinguish between job costing and batch costing.
Answer:
Under Job Costing it comprises a specific quantity of a product to be manufactured as per customer’s specifications. Under Batch Costing, it is a group or batch of identical products is ascertained and therefore each batch of products is a cost unit for which costs are ascertained.

Question 4.
State the any four features of job costing.
Answer:
The two features of job costing are as follows:

• It tracks all costs related to jobs done by the company.
• Each job in the Job Costing System is given a unique number that identifies the job.
• Each job has its own characteristics and needs specific treatment.
• Each job is treated as cost unit.

Question 5.
State the any two advantages of job costing.
Answer:
The two advantages of job costing are as follows:

• Easy to Calculate Overheads for Specific Job.
• Better Control over Cost.

Question 6.
State the any two limitation of job costing.
Answer:
The limitations of job costing are:

• It involves a great deal of clerical work in recording the cost of materials daily.
• The scope of committing mistakes are enough as cost of one job may be wrongly posted to the cost of other job.

Question 7.
Give any four examples of industries where job costing is applicable.
Answer:

• Publishing Industry
• Shipping Industry
• Repairs and Installation Industry
• Printing Industry.

Question 8.
What is batch costing?
Answer:
Batch costing refers to the identification and assignment of costs related to producing a set amount of goods. This includes all fixed and variable costs for producing the batch.

SECTION – B

Question 1.
State the features of job costing.
Answer:
The features of the Job Costing System include:

• It tracks ail costs related to jobs done by the company.
• Each job in the Job Costing System is given a unique number that identifies the job.
• Each job can be subdivided into any number of activities used to track costs of individual tasks within a job.
• Each of activitiesrefers to a general ledger account number where the costs are to be accumulated.
• Each activity contains costs to date for that activity along with budget estimates.
• Job cost reports can be used to compare the actual expenditures against the budgeted amounts to watch the progress of a job.
• All of the Accounting System modules can charge costs to an activity of a job.
• Payroll costs can be charged against an activity through the Payroll System.
• Direct purchases are charged against an activity.
• It is also possible to charge the cost of inventory items used against an activity.
• It transfers the costs of a job to a work in process account while the job is in progress, and transfers those costs to the proper expense accounts when the job is completed.
• A job may be created using existing jobs as a model.

Question 2.
What are the objectives of job order costing?
Answer:

• It helps in finding out the cost of production of every order.
• It helps in ascertaining profit or loss made out on its execution.
• It helps to judge the profitability of each job.
• It enables management to control operational inefficiency.
• It provides accurate cost information for each job or product.
• It enables management to reduce the cost.
• It helps in effective decision making.
• It provides proper valuation of work in progress.

Question 3.
What are the prerequisites of job order costing?
Answer:
The prerequisites of job order costing are as follows:

• A sound production planning and controlling system.
• An appropriate time booking and time keeping system to avoid idle time.
• Maintenance of necessary records with regard to job tickets, work order, operation tickets, bills of materials and tools requirements etc.
• Appropriate methods of overhead apportionment and absorption rate.
• Effective designing and scheduling of production.
• Track the costs involved in the job.
• Make sure all of the costs are invoiced to the customer
• Produce reports showing details of costs and revenues by job.

Question 4.
Explain the procedure of job order cost system.
Answer:
The procedure of Job costing that may be adopted for costing purposes is briefly given below:
1) Customer’s Enquiry – Production or job order is executed on the basis of enquiries received from the customers. The routine enquiries may be related to expected estimated costs to be incurred, quality to be maintained and duration for production planning etc.

2) Quotation for the Job – As per the customer’s enquiry and specifications of work or job, a responsible person is preparing the estimates or quotation and price is fixed for a specific job. And the same is conveyed to the customer appropriately.

3) Customer’s Order – If the quotation is satisfactory to the customer, he may place an order.

4) Production Order – As soon as an order is received, the Production Planning and Controlling Department will make out a production order. It is in the form of instructions issued to the foremen to execute the order and to control its physical progress. It contains all the information regarding the production. Accordingly the production control department assigns a production order number for each order or job.

5) Cost Accumulation – The Cost Accountant is responsible for preparing a Job Cost Card on the basis of production order. It is also termed as “Job Cost Sheet,” For each job the costs are collected and recorded under separate production order number. The sources of collection of costs are:

• Direct material can be identified or obtained either from Bill of Materials or Requisition Slips or Invoices in the case of direct purchases.
• Wages paid to direct labour is associated with a job and can be identified or recorded with the help of Time Sheet, Job Cards and Wage Analysis Sheet.
• Direct expenses are identified on the basis of direct expenses vouchers.
• Overheads are apportioned on some predetermined basis. It can be accumulated with the use of standing order numbers or cost account numbers.

6) Completion of Jobs – After the completion of a job, the final report is sent to the costing department with regard to charging of material, labour, and overheads which are to be recorded on the job cost sheet. The actual cost recorded under each element of cost is ascertained to find out the total cost. Any deviations from the estimated costs are also noted to take the corrective actions.

7) Profit or Loss on job – It is determined by comparing the actual cost with the price obtained.

Question 5.
State the advantages of job order costing.
Answer:
The advantages of job order costing are as follows:

• Better Control over Cost.
• Apply Corrective Measures fast.
• More Co-ordination of Accounting System.
• Easy to Calculate Overheads for Specific Job.
• It offers a detailed analysis of the costs of materials, labor cost and overheads by functions and nature.
• Job order costing makes it possible to appraise the profitability of a job.
• It facilitates the estimation of the cost of a similar job.
• Job order costing allocates overheads on the basis of a predetermined rate.
• Job order costing makes easy to identify spoilage and defects to take corrective actions.
• Job order costing evaluates efficiency of different types of jobs with cost records by using statistical techniques.

Question 6.
State the limitations of Job order costing.
Answer:
The limitations of job order costing are as follows:

• This method. is relatively more labour intensive.
• It is an expensive method.
• With the increase in clerical work, there are chances for committing more errors and mistakes.
• Job Costing is essentially historical costing.
• It does not provide for the control of cost unless it is combined with estimated or standard costing system.
• It is difficult to make cost comparison among different jobs.
• Each job has its Own features.
• If the employees of departments are inefficient, there will be no benefit of job costing because overhead cost will increase.

Question 7.
State the features of contract costing.
Answer:
The following are the main features of contract accounts.
(1) Higher proportion of direct costs – As most of the items of expenses can be directly identified with a contract, t though indirect, are treated as direct expenses. Expenses on telephone installed at site, site power usage, site vehicles are treated as direct expenses.

(2) Low Indirect cost – The only item of indirect cost may be head office expenses. Such cost represents only a small proportion of the contract cost and is absorbed usually on some overall basis such as percentage of total contract cost.

(3) Difficulties of cost control – The large scale of contracts and size of the site may create some major problems of cost control consuming material usage and losses,pilferage, labour supervision and utilisation, etc.

(4) Surplus materials – Surplus materials, If any will be either credited to contract account with cost of materials at the end of the contract or will be debited to new contract account, if directly transferred to another contract. If the material is not required immediately, it will be stored and the cost debited to a stock account.

Question 8.
Distinguish between job costing and batch costing.
Answer:
The difference between job costing and batch costing are:

Job	Batch Costing
(i) Costs are collected and accumulated according to Jobs, Contracts.	(i) Lot of similar units which com prise the batch may be used as a cost unit for ascertainment of cost.
(ii) Job is treated as a separate entity for the purpose of costing.	(ii) Separate cost sheet is maintained for each batch by assigning a batch number.
(iii) Costs are found out at the stage of completion of the job	(iii) Cost per unit of product is determined by dividing the total cost of a batch by the number of units of that batch.
(iv) Job costing is used in Printing, Furniture making, Ship Building etc.	(iv) Batch costing is used in drug industries, readymade garments, T.V. sets, Radio’s and Electronic Components Manufacture.

Question 9.
Discuss the comparison between Job and Batch Costing.
Answer:
In case of job costing, work is undertaken as an identifiable unit and cost of each job is ascertained separately. Such a method of costing is suitable in case of motor workshop, printing press and where manufacture of products is according to customers’ specific requirements.

Batch costing is extension of job costing. Job costing refers to costing of jobs that are executed against specific orders whereas in batch costing items are manufactured for stock. In batch costing a batch may represent a number of small orders passed through the factory in batches. Each batch is treated as a unit of cost and is separately costed. Cost per unit is ascertained by dividing the total cost of the batch by number of items produced in that batch.

Question 10.
State the distinction between Job and Process Costing.
Answer:
The difference between Job and Process Costing are:

Job costing	Process Costing
1. Costs are ascertained separately for each job	1. Cost are compiled process wise and cost per unit is the average cost.
2. Production is non standard items with specifications and instruction from the customers.	2. Production is of standardized products and cost units are identical
3. Production is against orders from customers	3. Production is for stocks
4. Cost are calculated when a job is completed	4. Costs are computed at the end of a specific period
5. Cost of a job is not transferred to another job.	5. Cost of one process is transferred to the next process in the sequence
6. Cost control is comparatively more difficult because cost unit or job needs individual attention.	6. Cost control is comparatively easier since products are standardized
7. Usually no transfers from are job to another	7. Product more from are process to another process.
8. Requires more forms and details for allocation of cost.	8. Requires few forms and less details

Question 11.
Give the meaning of Batch costing. What are the types of costs in batch costing.
Answer:
Batch costing is a form of specific order costing. When orders are received from different customers, there are common products among orders; then production orders may be issued for batches, consisting of a predetermined quantity of each type of product. Batch costing method is adopted in such cases to calculate the cost of each such batch.

There are two types of costs involved in Batch Costing:

• Set up costs
• Carrying costs.

If the batch size is increased, set up cost per unit will come down and the carrying cost will increase. If the batch size is reduced, set up cost per unit will increase and the carrying cost will come down. Economic Batch quantity will balance both these opponent costs.
The formula to be used for calculation of economic lot size is Q = \(\sqrt{\frac{2 U S}{C}}\)
Where, Q = Qty. or .units of products in the economic batch, S = Set-up cost per batch. C = Carrying cost per unit of production p.a. U = Annual units of production.

Question 12.
What are the advantages and disadvantages of batch costing?
Answer:
Advantages of batch costing are:

• It gives less boredom for employees because they are working on more than one product.
• It helps to make and offer a variety of products.
• In this data helps in preparing budgets.
• To reflects the analysis of cost elements and functions.

Disadvantages of batch costing are:

• It involves high storage costs.
• In this methods time is wasted.
• It shows more and more chance of mistakes.
• The laborious as it involves more clerical work.
• It is more expensive compare to others.

Question 13.
Explain determination of economic batch quantity.
Answer:
Batch Costing Method production is carried on in batches. In each batch, there are a number of units. The ascertainment of economic batch quantity is very useful. Economic batch quantity may be calculated by using the -formula meant for calculating Economic Order Quantity in case of material control.
Economic Batch Quantity = \(\sqrt{\frac{2AO}{C}}\)
Where: A = Demand of components in a year. O = Setting up cost per batch. C = Cost of capital and storage (carrying cost) per unit per annum.

Question 14.
Annual demand for the component – 2,400; set-up cost per – 100; carrying cost per unit of production p.a. – 6% p.a. Manufacturing cost per unit 200.
(a) Calculate the economic batch quantity for a company using batch costing with the given information.
(b) Also find out the number of batches to be produced to meet the annual requirement.
Calculation of Economic Batch Quantity
Answer:
(a) EBQ = \(\sqrt{\frac{2 \mathrm{AS}}{\mathrm{C}}}=\sqrt{\frac{2 \times 2400 \times 100}{200 \times 6 \%}}=\sqrt{\frac{4,80,000}{12}}=\sqrt{40,000}\)

(b) No.of batches = \(\frac{\text { Annual Demand }}{\text { EBQ }}=\frac{2400}{200}\) = 12

Question 15.
The demand of an item is uniform at a rate of 25 units per month.
The set up cost is 30 each time a production is made. The inventory , carrying cost is 0.50 per unit per month. Determine the economic batch quantity by using batch costing.
Answer:
EBQ = \(\sqrt{\frac{2 A S}{C}}=\sqrt{\frac{2 \times 300 \times 30}{6.00}}=\sqrt{\frac{18,000}{6.0}}\)
= 55 units/Batch
C = 25 pm x 12 months = 300 PA – A
= 0.50 x 12
= 6.00 p.a.

Practical Problems

Question 1.
Calculate the cost and selling price of the job after adding 20% profit on total cost.
Material – 12,030
Wages:Dept. A-60 hours at – 50 per hour
Dept B-40 hours at – 30 per hour
Dept C-20 hours at – 25 per hour
Variable overheads – 20 per hour
Fixed overheads – 25,000 for 1000 hours

Question 2.
The following costs were incurred on Job No. 501
Materials 9,014 Wages:
Department A 60 hours at 30 per hour
Department B 40 hours at 20 per hour
Department Q 20 hours at 50 per hour
Variable overheads:
Department A 12 per hour
Department B 20 per hour
Department C 30 per hour
Fixed overheads estimated at 40,000 for 2000 hours
You are required to find out cost of Job No. 501 and the price to profit of 25% on selling price.

Question 3.
Calculate the cost and selling price of the job after adding 25% profit on total cost.
Material 24,000
Wages – Dept A – 120 hrs at 100 per hr
Dept B – 80 hrs at 60 per hr
Dept C – 40 hrs at 50 per hr
Variable overhead 40 per hour
Fixed overhead 50,000 for 2,000

Question 4.
The following direct costs were incurred on job no. 678 of standard TV company.
Materials 4,020
Wages Dept A – 60 hours at 3 per hour
Dept B – 40 hours at 2 per hour
Dept C – 20 hours at 5 per hour
Overhead expenses were estimated as follows:
Variable overheads:
Dept A : 5,000 for 5,000 labour hours
Dept B : 3,000 for 1,500 labour hours
Dept C : 2,000 for 500 labour hours.
Fixed overheads: Estimated at 20,000 for normal working hours. You are required to calculate the cost of job no. 678 and calculate the price to give profit of 25% on selling price.

Question 5.
From the following particulars related to Job No. 101 ascertain the total cost and estimated selling price.
Direct materials 17,600
Direct labour 8,000
Works overheads are recovered on the basis of 50% of prime cost and administrative overhead 10% of works cost. A profit of 10% on total cost is to be added.
Solution:
Job cost sheet

Particulars	Amount
Direct materials	17,600
Direct labour	8,000
Prime cost	25,600
Add: Works overhead	12,800
Works cost	38,400
Add: Administrative overhead	3,840
Production cost	42,240
Profit	4,220
Total cost	46,464

Question 6.
From the following particulars relating to 4 jobs of a manufacturing company as certain the total cost of each job and selling price of each job. Assuming that profit mark up is 25% on selling price.

Particulars	Job A	Job B	Job C	Job D
Materials	1,600	2,000	2,400	2,800
Wages	800	1,000	1,200	1,400
Direct expenses	160	200	240	280

Works overhead is 50% prime cost and office overhead is 20% on works cost.

Question 7.
Obtain the selling price of a job from the following particulars:
Materials used 40,000
Productive wages 25,000
Direct expenses 5,000
Provide 60% of productive wages for Works-on-cost and 12.5% of works cost for Office-on-cost. Profit is to be realized at 15% on the selling price.
Solution:
Job cost sheet

Particulars
Material used Productive wages Direct Expenses Prime cost (+) Overhead: Factory overhead (25,000 x 60%) Work cost Office overhead (85,000 x 12.5%) Total cost	40,000 25,000 5,000
	70,000 15,000
	85,000 10,625
	95,625

Question 8.
Batch No. A – 100 incurred the following costs.
Direct material 10,000
Dept A 800 labour hours at 5 per hour
Dept B 1,400 labour hours at 6 per hour
Factory overheads are absorbed on labour hour basis and sales are 7 per hour for Dept A and 4 per hour for dept B. The firm uses a cost plus system for setting prices and expects a 25% gross profit (Sales volume minus factory cost).
Admn overheads are absorbed at 10% of selling price.
Assuming that 1,000 units were produced in Batch A – 100. Calculate the selling price per unit.

Question 9.
Job No. 800 was stated on 10th Oct 2003 and completed on 1st Nov 2003. Material used were 600 and labour charged directly to the job was 400. Other informations were as follows:
Machine No. 215 used for 40 hrs. the machine hour rate is 3.50
Machine No. 169 used for 30 hrs. the machine hour rate is 4
Six welders worked on the job for 5 days of 8 hours each, the direct labour hour rate for welders is 20 paise.
Other expenditure of the concern net apportioned for calculating the machine hour or the direct hour, rates accounted to period being 20,000
Ascertain the works cost of Job No. 800

Question 10.
From the following figures prepare a cost sheet showing cost per unit and profit for the period and profit for the period.
Opening stock of raw materials – 20,000
Purchases of Material – 1,00,000
Closing stock of Raw materials – 10,000
Direct wages – 60,000
Machine hour rate 1.25
Office overhead : 25% of works cost
Selling overhead 2 per unit
Unit produced : 6,000
Units sold: 4,000
Rate of profit: 20% on selling price

Question 11.
In a factory 20,000 units of product A were manufactured in the month of March 2009. From the following figures, prepare a cost sheet showing total cost and sales.
Opening stock of raw materials – 5,000
Purchases – 55,000
Closing stock of finished goods – 1,000
Closing stock of raw materials – 10,000
Direct wages – 25,000
Factory overheads – 40,000
Office overheads – 20,000
Profit is 25% on sales
Solution:

Question 12.
The following extracts of costing information relate to commodity for the year ending 31.12.2014.
Particulars
Purchases of raw materials – 6,000
Direct wages – 5,000
Rent Rates & Insurance – 2,000
Carriage inwards – 100
Stock (1.1.2014)
Raw materials – 1,000
Finished products 200 tonnes – 800
Stock (31.12.2014)
Raw materials – 1,100
Finished products 400 tonnes
Cost of factory supervision – 400
Sale of finished products – 15,000
Advertising and selling cost is 40 paise per tonne sold. 3,000 tonnes of the commodity were sold during the year.
Prepare a cost sheet.

Question 13.
India Products Ltd. has received an enquiry for the supply of 2,00,000 units of special type of machine screws.
The management has estimated fixed investment of 6 lakhs and working capital investment of 3,20,000 for the above product. The following further estimates are also made.
1) Requirement of raw materials 20,000 kgs at 23 per kg.
2) Required labour hours 18,000 of which 2,000 are overtime payable at double the normal labour hours rate. Normal LHR is 10
3) Works O/H – 10 per LHR.
4) There are no admn. O/H but selling and dist. exp. are 2,31,000. Amount realiased from the sale of scrap is 20,000
Management intends to have return of 25% on the total capital employed. You are required to prepare estimated job cost sheet to ascertain the price to be quoted.

Question 14.
A company has manufacturing shops. The shop floor supervisor presented the following cost for job A to determine the selling price.