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  Methodology Used In Job Costing

Introduction to Methodology Used In Job Costing

The purpose of job costing is to determine the cost of a job which is produced according to the requirements of the customers. Therefore it is essential to recognize the costs related with the job and represent it in the form of job cost sheet for showing several types of costs. Several costs are recorded in the following manner.

Ø   Direct Material Costs:

Material employed during the production process of a job and recognized along with the job is the direct material. The cost of such type of material consumed is the direct material cost. Direct material cost is identifiable along with the job and is charged directly. The source document for determining this cost is the material requisition slip by which the quantity of material that is consumed can be worked out. Cost of similar can be worked out as per to any method of pricing of the issues such as first in first out, last in first out or average method according to the policy of the organization. The actual material cost can be compared along with standard cost to observe any variations among the two. Therefore, as each job might be dissimilar from the other, standardization is hard but attempts can be made for the same.

Ø   Direct Labor Cost:

This cost is also identifiable with a specific job and can be take place with the help of 'Job Time Tickets' that is a record of time spent through a worker on a specific job. The 'job time ticket' comprise the record of beginning time and completion time of the job and the time needed for the job can be carried out easily from the same. Computations of wages can be done through multiplying the time spent through the hourly rate. Here also principals can be set for the time and the rate so that comparison among the standard cost and actual cost can be extremely useful.

Ø   Direct Expenses:

Direct expenses are chargeable directly to the specific job. The invoices or other document can be marked along with the number of job and so the amount of direct expenses can be determined.

Ø   Overheads:

This is actually a challenging task because the overheads are all indirect expenses acquired for the job. Due to their nature, overheads cannot be recognized along with the job and that is why they are apportioned to a specific job on some appropriate basis. Pre determined rates of absorption of overheads are usually employed for charging the overheads. This is completed on the basis of the budgeted data. If the predetermined rates are employed, under/over absorption of overheads is inevitable and hence rectification of similar becomes essential.

Ø   Work in Progress:

After completion of work, the total cost is worked out through adding the overhead expenses in the direct cost. Other word, the overheads are added to the prime cost. The cost sheet is then termed as 'completed' and proper entries are made in the finished goods ledger. If a job remains not complete at the end of an accounting period, the total cost acquired on the same becomes the cost of work in progress. The work that is in progress at the end of the accounting period becomes the closing work in progress and similar becomes the opening work in progress at the beginning of the subsequent accounting period. A separate account for work in progress is maintained.

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