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Introduction to Costing
Semester 2 2008 / 2009
Learning Outcomes
• A job order costing system estimates the cost of manufacturing products for
different jobs required for specific customers orders
• Each job may differ in terms of:
- Materials content
- Hours of labor required
- Machine time required
- Demand placed on support activity resources (i.e., manufacturing overhead)
- Special customer needs that require customized production
• With such variety, managers need to understand the costs of individual jobs so that
they can assess product and customer profitability
• Firms are sometimes required to bid on jobs before customers decide to place an
order with them
• Costs need to be estimated for each job in order to prepare a bid
• Job order costing systems provide the means to estimate these costs
• A job bid sheet provides a format for recording the estimated costs:
Panel 1: identifies the customer, the product, and the number of units required
1
Materials Quantity
Price Amount
Panel 2: lists
Bar steel all3”
stock the materials required to complete
3,600 the job
RM11.30 RM40,680
Subassembly 1,500
39.00 58,500
Total direct materials
RM99,180
Panel 3: lists the amount of direct labor required for the job
Labor
Hours Rate Amount
Lathe operators 480
RM26.00 RM12,480
Assembly workers 900
18.00 16,200
Total direct labor 1,380
RM28,680
Panel 4: contains estimates for support costs / overhead
Support Costs
Amount
600 machine-hours @ RM40/hour
RM24,000
1,380 direct labor hours @RM36/hour
49,680
Total support costs
RM73,680
Panel 5: summarizes the total costs estimated for the job
2
- The amount of support costs excluded from the cost driver rate
- The target rate of return desired by the corporation
- Competitive intensity
- Past bidding strategies adopted by key competitors
- Demand conditions
- Overall product-market strategies
• Job order cost accounting systems record costs actually incurred on individual jobs as
they are produced
• Copies of all materials requisition notes and worker time cards are forwarded to the
accounting department, which then posts them on a job cost sheet
• The system calculates total costs for the portion of the job completed
• Structure of job cost sheet are almost the same as job bid sheet:
In addition, manufacturing support costs are applied to the job at the rate of RM5 per
direct labour hour. The selling price for each monitor is RM350.
Required: Prepare job cost sheet for this job and determine cost per monitor
3
Answer:
Batch Costing
What is it?
4
Objects unit (after calculating total cost
for the batch)