Job Batch and Service costing – Methods

Job Batch and Service costing – Methods

Job Batch and Service costing overview

Job Costing

Job Batch and Service costing

  • Job costing is used when a business entity carries out tasks or Jobs to meet specific customer orders.
  • Jobs are short-time and work is usually carried out in a fairly short period of time.
  • A cost is calculated for each individual Job and this cost can be used to establish the profit/loss from doing the Job.
  • Each Cost unit is a Job.
  • A Job costing system is usually based on absorption costing principles.
  • In many cases, Job costs include not just direct material and direct labour but also direct expense;
    • Rental cost for the Job,
    • depreciation of equipment used for Job.
  • Production overheads might be absorbed on a direct labour hours basis or any other suitable basis.
  • Non – Production overheads might be added;
    • as a percentage of prime cost of the Job; or
    • as a percentage of production cost of the Job.
  • Each Job is given a unique identity number or Job number.
  • Direct costs and overheads are recorded on a Job sheet or Job card for the Job.
  • A Job account is similar to a W.I.P account, except Job account is for only one Job.
  • The W.I.P account is the total of all individual Job account.
  • When the Job is finished the total cost of Job is transferred to the cost of sales.

Job Account Proforma

Job costing

Batch Costing

Job Batch and Service costing

  • Batch costing is a system of costing for items that are produced in ‘Batches’ rather than individually. A batch might also be called a Production run.
  • In batch costing the total cost is established for each individual batch where each batch consists of a large number of similar units/items.
  • Unlike Job costing it is less common to include Non-Production overheads costs within the total batch cost.. Although it is certainly possible to do so.

Cost per unit = Total Batch cost
                        No. of units

  • In all other respects batch costing is very similar to Job costing.
  • Any ‘Setup costs’ can be charged directly to the cost of the batch.

Batch costing proforma

Batch costing

Service Costing

Job Batch and Service costing

  • The costs of a service are the sum of direct materials, direct labour, direct expenses and a share of operational overheads (unless marginal costing is used).
  • Service costing differs from costing in manufacturing industries in several ways:
    • No production system therefore no production overheads.
    • Direct materials are fairly small proportion of total costs.
    • Direct labour costs are high.
    • General overheads costs can be a very high proportion of total costs.

Composite cost units:

  • One of the main problem with service costing is that it can be different to identify a suitable cost unit for the service.
  • It is often appropriate to use a composite cost unit in service costing. This cost is made from two variables , such as a cost per man per day.

Service unit/composite cost unit = Total costs of services
                                                              No. of units of services

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