Job costing

Goods produced and works done as per

customers' order are called job. Generally,
the job order costing system is used only
when the products manufactured are
sufficiently different from each other.
Therefore, the costing method designed to
determine the cost of a job is very
essential. Job order costing is the costing
system that determines the cost of the jobs
received from the client.

BATCH COSTING
The term batch refers to the lot in which the articles are
to be manufactured. Whenever a particular product is
required, one unit of such product is not produced but a
lot of say 500 or 1000 units of such product are produced.
It is therefore also known as Lot Costing. This method of
costing is used in case of pharmaceutical or drug
industries, ready-made garment factories, industries
manufacturing component parts of radio sets, television
sets, watches, etc.

Just-in-time (JIT) manufacturing is a

production model in which items are
created to meet demand, not created in
surplus or in advance of need. The purpose
of JIT production is to avoid the waste
associated with overproduction, waiting for
demand and excess inventory.

Total Quality Management (TQM)

is a comprehensive and structured
approach
to
organizational
management that seeks to improve
the quality of products and services
through
ongoing
refinements
in
response to continuous feedback.

Significance of Optimal batch quantity" or economic

production quantity Economic Batch Quantity in TQM
optimal batch quantity" or economic production quantity, is a
measure used to determine the quantity of units that can be
produced at minimum average costs in a given batch or production
run. Economic Production Quantity model (also known as the EPQ
model) is an extension of the Economic Order Quantity model. The
Economic Batch Quantity model, or production lot-size model, is
similar to the EOQ model in that we are attempting to calculate an
optimum for the batch quantity we have to produce.

PROCESS COSTING
Process costing is a method of costing used mainly in
manufacturing where units are continuously massproduced through one or more processes. Examples of
this include the manufacture of erasers, chemicals or
processed food.
Process costing is a method of costing under which all
costs are accumulated for each stage of production or
process, and the cost per unit of product is ascertained at
each stage of production by dividing the cost of each
process by the normal output of that process. Output of
one process become raw material of another process .The
output of the last process is transferred to finished stock.

Normal loss
This is the term used to describe normal
expected wastage under usual
operating conditions. This may be due to
reasons such as evaporation, testing
or rejects.
Abnormal loss
This is when a loss occurs over and above
the normal expected loss. This may
be due to reasons such as faulty machinery
or errors by labourers.

Problem No.1
Following figures show the cost of a product passes
through 3 processes. In March, 1000 units were
produced. Prepare the process accounts and find out
output of each process.

Raw
materials
Wages
Direct
expenses

Process 1
Rs.

Process 2
Rs.

Process 3
Rs.

50,000
30,000
7,000

30,000
25,000
3,000

20,000
25,000
5,000

Overhead expenses were Rs.12,000 and it should be

apportioned on the basis of wages.

Ratio of wages = 30,000:25,000:25,000(process I,ii,iii)

= 6:5:5 = 6/16 : 5/16 : 5/16
Process I Account
Particulars

Units Amou
nt

Particulars

units

To Raw materials
To wages
To Direct expenses
To overheads ( basis of
wages)
12,000x6/16

1,00
0

By process II a/c
( Bal.fig output
transferred to
process II at
Rs.91.50 per unit)

1,00 91,500
0
(BF)
(prob
lem)

50,00
0
30,00
0

Amount

7,000
4,500

1,00
0

91,50
0

91,500/1000 =
91.50

1,00
0

91,500

Ratio of wages = 30,000:25,000:25,000 ( process I,ii,iii)

= 6:5:5 = 6/16 : 5/16 : 5/16
Process II Account
Particulars
To process I a/c
( output transferred
from process I)
To Raw materials
To wages
To Direct expenses
To overheads ( basis
of wages)
12,000x5/16

Units Amoun Particulars

t
1,00
0

By process IIIa/c
91,500 ( Bal.fig output
30,000 transferred to
25,000 process IIIat
Rs.153.25 per
3,000
unit)
3,750

1,00
0

1,53,2
50

units

Amount

1,00 1,53,250
0
(BF)
(prob
lem)

1,53,250/1000 =
153.25
1,00
0

1,53,250

Ratio of wages = 30,000:25,000:25,000 ( process I,ii,iii)

= 6:5:5 = 6/16 : 5/16 : 5/16
Process III Account
Particulars
To process IIa/c
( output transferred
from process II)
To Raw materials
To wages
To Direct expenses
To overheads ( basis
of wages)
12,000x5/16

Units Amoun Particulars

t
1,00
0

1,53,2
50

By Finished stock (
Bal.fig output at
Rs.207 per unit)

units

Amount

1,00 2,07,000(
0
BF)
(prob
lem)

20,000 2,07,000/1000 =
207
25,000
5,000
3,750
1,00
0

In iii process bal.fig

should be By finished
stock /output because

2,07,0
00

1,00
0

2,07,000

Problem No.2
A product passes through three processes X, Y and Z to
its manufacture. From the following details, ascertain the
cost of the product (unit cost) at the end of each stages
of production.

Raw materials(10,000 units for X, should

be mentioned FOR process X, but same
units will continue in next process. But
units should not be mentioned again)
Wages
Manufacturing expenses
Output in units
opening stock ( Rs.4.5 per unit for y and
10 per unit for z)
Closing stock ( Rs.4.5 per unit for y and
10 per unit for z)

Process
X
Rs.

Proces Proces
sY
sZ
Rs.
Rs.

25,000

30,000
20,000

15,000
5,000
10,000
----------------------

20,000
8,000 10,000
11,200
7,000
7,000 13,000
5,000
5,000
3,000

Process X Account
Particulars

Units

Amou
nt

To Raw materials
To wages
To Manufacturing
expenses

10,00 25,00
0
0
15,00
0

Particulars

units

Amount

By process Y a/c
( Bal.fig output
transferred to
process Y at Rs.4.5
per unit)

10,00
0
(probl
em)

45,000
(BF)

10,00
0

45,000

5,000
45,000/10000 =
4.5

10,00 45,00
0
0

Process Y Account
Particulars
To opening
stock(@Rs.4.5 per
unit)
To process X a/c
( output transferred
from process x)
To Raw
materials(note)
To wages
To Manufacturing
expenses

Units

Amou
nt

31,50
7,000 0
10,00 45,00
0
0
30,00
0
20,00
0
8,000
17,00 1,34,
0
500

Particulars
By closing stock
(at Rs.4.5 per unit)
By process Z a/c
( Bal.fig output
transferred to
process Z at Rs.10
per unit)
1,12,000/11200 =
10
By wastage (amt.
need not be
mentioned as it is
part of production
and covered in
output. )

units

Amount
22,500

5,000
(prob) 1,12,000
11,20 (BF)
0
(probl
em)
------800(b
f)

17,00
0

1,34,500

In case of process y and z, for To raw

materials, units need not be
mentioned because they are used
from previous process tranferred
output considered as raw materials.
However in the first process X, units
10,000 should be mentioned.will be
considered as consumption
in next process. Howver the amount
may increase as they are in different
process.

Process Z Account
Particulars

Units

Amou
nt

To opening
stock(@Rs.10 per unit)
50,00
To process Y a/c
5,000 0
( output transferred
11,20 1120
from process y)
0
00
To Raw
materials(note)
To wages
20,00
To Manufacturing
0
expenses
10,00
0

Particulars
By closing stock
(at Rs.10 per unit)
By
production( Bal.fig
output at
Rs.13per unit)
1,69,000/13000 =
13
By wastage (amt.
need not be
mentioned as it is
part of production.
)

units

Amount
30,000

3,000
(prob) 1,69,000
13,00 (BF)
0
(probl
em)
------200(b
f)

7,000
16,20 1990
0
00

16,20
0

1,99,000

Problem No.5
In process A,(may be next process) 1000 units were
introduced at a cost of Rs.20,000, the other expenditure
incurred in the process were materials Rs.10,000 and
wages Rs.5,000. 10% is the normal loss during
production and possess a scrap value of Rs.3 each. The
output of process A was only 800 units. Find out the
value of Abnormal loss and also prepare the process A
a/c to know the cost of output transferred to next
process.

Process A Account
Particulars
To units introduced
To Raw materials
To wages

Units

1,000

Amou
nt

Particulars

units

20,00
0
10,00
0

By normal loss (
10% of 1000 units
at Rs.3 scrap
price)
By Abnormal loss
(w.note)
By next process
( Bal.fig output
transferred to next
process )

100

5,000

1,000

35,00
0

Amount
300
3,855.55

100
800
(B.f)

30,844.4
5 (BF)

1,000 35,000

Calculation of Abnormal loss

Units of abnormal loss = (Total units-10% of normal loss)output
= (1000 100) 800
= 900 800
= 100
Value of abnormal loss =
Normal cost of normal production
______________________________ x Abnormal loss (units)
Normal output units

Calculation of Normal cost of normal production

Normal output in units = units introduced normal loss
= 1000 100 = 900 units
Normal cost = cost of inputs ( value of units intro
20,000+mat 10,000+wages 5000) introduced cost of
normal loss
= 35,000 100unitsx3
= 35,000 300 = 34,700

Value of abnormal loss =

Normal cost of normal production Rs.34700
______________________________
x Abnormal loss (units) 100
Normal output 900 units
= Rs.3,855.55

Problem No.7
1000 units was introduced in a process at a cost of
Rs.1,850. The normal process loss is 10% of production. It
is ascertained that the actual process loss was of 150
units. The scrap of normal loss is sold to a contractor at
Re.0.50 per unit. . You are required to prepare:
i) Process account

Process Account
Particulars

Units

To units introduced

Amou
nt

Particulars

1,850

By normal loss (
100
10% of 1000 units
at Re 0.50 scrap
price)
By Abnormal loss
50
(w.note)
By next process
850
( Bal.fig output
(B.f)
transferred to next
process )

1,000

1,850
1,000

units

Amount
50
100
1,700
(BF)

1,000 1,850

Calculation of Abnormal loss

Units of abnormal loss = Total units- ? % of normal lossoutput
output is not given
When the output is not given, it can be calculated as
follows:
actual loss in units - Normal loss in units
= 150 units 10% of 1000 = 150 100 = 50 units
Value of abnormal loss =
Normal cost of normal production
______________________________ x Abnormal loss (units)
Normal output units

Calculation of Normal cost of normal production

Normal output in units = units introduced normal loss
= 1000 100 = 900 units
Normal cost = cost of inputs ( directly amount is given
in the problem) introduced cost of normal loss
= 1,850 100unitsx0.50
= 1,850 50 = 1,800

Value of abnormal loss =

Normal cost of normal production Rs.1,800
______________________________
x Abnormal loss (units)
50
Normal output 900 units
= Rs.100

Problem No.9
In process Y, 75 units of a commodity were transferred
from process X at a cost of Rs.1,310. The labour and
overhead expenses incurred by the
Process were Rs.190. 20% of the units entered are
normally lost and sold @ Rs.4 per unit. The output of the
process was 70 units. Normal cost of normal output is
Rs.1,440. Prepare process Y a/c

Process Y Account
Particulars
To PROCESS X A/C
To labour and
overhead expenses
To Abnormal gain a/c
(W.note)

Units

Amou
nt

Particulars

75

1,310

10

190
240

By normal loss (
15
20% of 75units at
Rs.4 scrap price)
By next process
( Bal.fig output
transferred to next 70
process )
(B.f)

85

1,740

units

85

Amount
60

1,680
(BF)

1,740

Calculation of abnormal gain ( because actual output

is more than normal output)
=
Normal cost of normal production
______________________________ x Abnormal gains (units)
Normal output units
Normal cost of normal production is available in the problem.
Calculation of Normal output units and Abnormal
gains (units)
Units introduced
75
- Normal loss in units
15 as per the problem ie 20% of 75
units
Normal output
60 units
- Actual output
70 units as per the problem
Abnormal gain
10 units ( because actual
output is more than normal output)

Calculation of abnormal gain ( because actual

output is more than normal output)
=
Normal cost of normal production 1,440
______________________________ x Abnormal gains
(units)10
Normal output units 60

= Rs.240