Fundamentals Of Management Accounting

Job and Contract Costing

Fundamentals of Management Accounting

Class Slides Ian Wilson

Prepare ledger accounts for job, batch &

process costing systems
Marginal Cost Pricing & Full Cost Pricing to
achieve a specified return on sales or return
on investment, mark-up & margins

Jobbing production involving producing items

to specific order of a customer.
This is NOT mass production, each job has
its own characteristics.
Costs for each job need to be collected
separately, remaining identifiable within the
accounts.
Job costs are recorded on job cards.
Once the job is completed, overheads are
added to the job total.



Definitions: Job Costing

An order-specific costing technique, used in
situations where each job is different and is
performed to the customer's specifications.
Job costing involves keeping an account of
direct and indirect costs.
Since both types of costs are usually closely
related (a job requiring high input of labor
and material is likely to consume more
power, machine time, supervision time,
inspection time, etc.) indirect costs may be
applied as an estimated fraction of direct
costs

Job costing methods are similar to contract

costing and batch costing methods, and are
used in construction, motion picture, and
shipping industries, in fabrication, repair, and
maintenance works, and in services such as
auditing.

Read more:
http://www.businessdictionary.com/definitio
n

We can tackle Exercise 1 for job 666.

This is given on page 46.

A local jobbing company has just completed a

one-off job which involved making a
specialist frame.
You are asked to complete a cost summary
on page 47 of your notes:

This is another job costing question, you

have to prepare a list of costs that should be
assigned to the job.
This question throws up some issues about
costs that are relevant
Read the question very carefully:



4th day today

Registers phones e-mails in class
End of chapter questions
Re-cap on Job Costing
Batch Costing
Marginal Costing
Process Costing



Sunflower Ltd.
Ltd
You need to read the question carefully
There are several jobs being started &
completed
You have to prepare the job accounts
They are T accounts.



What is Batch Costing?

Very similar to job costing in that each batch
is separately identifiable
In Batch costing, the cost per unit is
calculated as:
Total cost for the Batch
Number of units in the Batch



Definition: Batch Costing

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. The unit cost of a batch
of goods can be calculated by dividing the
batch cost by the number of units produced



EXAM FOCUS:
Try Question 4.
This has the look at a typical CIMA exam
question.
Again you have 4 choices of possible correct
answers

Pricing is the process of determining what a

company will receive in exchange for its
products. Pricing factors are manufacturing
cost, market place, competition, market
condition, and quality of product.

How much to charge for a product or service?

This question is a typical starting point for
discussions about pricing, however, a better
question for a vendor to ask is - How much
do customers value the products, services,
and other intangibles that the vendor
provides?.



One that sells or vends

What price to charge?
What profit to make?

As a Management Accountant, you will be

asked to price products based on their cost
value.

You will have to consider:
1. Mark-up (profit expressed as a % of cost)
2. Margin (profit expressed as a % of price)

We have seen this information before:

No try Exercise 5

There are 4 parts to this question:

1. Use a mark-up on variable cost of 80% to
calculate price
2. What is the profit?
3. Use a margin of 60% on total production
cost, what is the price?
4. What is the profit?