Job Order Costing Examples, Practical Problems and Solutions

Problem No. 1: (Job Order Costing Cycle) The Excellent Company had the following inventories on April 1, 2019: \$ Raw Material 50,000 Finished Goods 28,000 WIP – Material 2,000 WIP – Labour 30,000 WIP – FOH 12,000 During the month the cost of material purchased was \$120,000, direct labor cost incurred was \$160,000 and factory …

Normal and Abnormal Wastage

Normal Wastage (Loss) This means the usual percentage of wastage arising in its natural course in a process or operation. Such wastage is not avoidable as it occurs in its natural course. The normal wastage and loss due to it should be charged to the good units arising out of the process. In this way, …

Batch Costing

What is Batch Costing? – Definition Batch costing is nothing but a modified form of job costing in which cost is calculated of each batch of production. This method of costing is applicable in those manufacturing unit, where articles are manufactured in definite batches. This method is also known as ‘Lot Costing’ as products are …

Output Costing

Output Costing – Definition Output costing is an analysis of the different elements of expenditure so as to find out the factory cost, office cost and total cost per unit. The per-unit cost is arrived at by dividing the total expenditure by the quantity produced. Output Costing – Explanation This costing system is employed in …

Essential Details You Need To Know About Cost Accounting

Cost accounting is a method of accounting that helps to calculate the cost of different functions of a company, such as production, fixed price along with depreciation of capital equipment. At first, it measures and records these costs individually and then compares the input outcome with the actual result to assist the management of a …

Difference Between Process Costing and Job Costing

A comparative study of process and job costing will help in understanding both systems in a better way. Difference Process Costing Job Costing 1. Costs are calculated process-wise and per unit cost is the average cost ascertained by dividing the total cost of the process by the number of units produced. 1. Costs are separately …

Job Costing – Examples, Practical Problems and Solutions

Example (Problem) No. 1 A job No. 58 passes through three departments namely X, Y and Z. The following information is given to you regarding this job: Required: You are required to calculate the cost of job No. 58 from the above figures. Solution Note: Calculation of overhead chargeable to Job No. 58 has been …

Characteristics of an Ideal System of Cost Accounting

A good system of cost accounting is that which achieves the objects of costing in the best possible way and brings to the business. An ideal system of costing should possess the following characteristics: 1. Simplicity Costing system should be simple to operate and easy to understand. The facts, figures and other information revealed by …

Essential Factors to be Considered for Designing a Cost Accounting System

For ensuring the efficient and successful operation of the cost accounting system, certain factors are to be given due consideration while designing such a system. These factors may be given as follows: (i) Technical Details of the Business: All the technical details of the business concern, its organizational structure, manufacturing procedure and process, selling and …

Objections to Cost Accounting

Sometimes certain objections are raised against cost accounting system and some disadvantages thereof pointed out. But the fact remains that there are no real disadvantages of the system itself. The disadvantages of the cost accounting system arise only if the system is not applied with caution and care. Main Objections to Cost Accounting The main …

Cost accounting system renders invaluable services to the manufacturers, management, employees, investors, consumers and Government. These services or advantages may be summarized as follows: (A) Advantages to manufacturers and management The main advantages of a sound cost accounting system to the manufacturers and management are: 1. Ascertainment of cost: The principal object of cost accounting …

Similarities and Differences Between Cost Accounts and Financial Accounts

Similarities Cost accounts and Financial accounts which are kept quite separate in a business concern, are similar in certain respects while in some other respects these differ from each other. The various  similarities between cost accounts and financial accounts may be given as follows: (i) Both cost accounts and financial accounts are maintained on the …

Comparison between Cost Accounting and Financial Accounting

Cost accounting is very closely related to financial accounting. It is generally said that the cost accounting system is complementary to the financial accounting system. According to L. W. Hawkins—”the ordinary trading account is a locked warehouse of most valuable information, to which the cost system is the key.” The Trading and Profit and Loss …

Costing, Estimating and Pricing

Sometimes there may arise confusion as regards the exact meaning of the terms ‘Costing‘, ‘Estimating‘ and ‘Pricing‘, which are used in connection with cost accounts. The exact meaning of these terms should be understood at this stage. Costing meanings and definition ‘Costing’ means ascertaining the actual cost. It can be defined as ascertaining the actual …

Installation of Costing System

Broadly speaking, the objective of any costing system should be to collect statistical data for significant operations of the undertaking, to analyze it and to make it available to the management in a suitable form with a view to assisting it in taking managerial decisions. Hence the costing system should primarily be set up for …

Costing

Definition The Institute of Cost and Management Accountants (ICMA) defines costing as “the techniques and process of ascertaining costs“. This simply speaks of technique and process. To elaborate it can be said that costing is a systematic process of determining the unit cost of output produced or service rendered, It analyses the expenditure incurred on …

Cost Accountancy

Cost Accountancy has been developed to meet the needs of the management of all those organisations which It has now become an essential part of accountancy which only a few decades ago was very much a part of the financial accounting. The Institute of Cost and Management Accountants, London has defined Cost Accountancy as “the …

Cost Accounting Cycle

Cost Accounting Cycle embraces activities connected with verification and preparation of source documents, their journalizing, then posting to control accounts and subsidiary ledgers, closing of accounts and presenting results of operations of accounting period in the form of the income statement. Period Covered By Cost Accounting Cycle Accounting period means the time period covered by an …

Costing methods and techniques

Costing is the technique and process of ascertaining costs. Keeping this definition in view various methods have been evolved to ascertain the costs. A few of the important methods of ascertaining the costs are as enumerated below: 1. Job Costing 2. Contract Costing 3. Cost plus Costing 4. Batch Costing 5. Process Costing 6. Single …

What is cost accounting?

Definition of Cost Accounting Cost accounting is the collection, processing and evaluation of operating data e.g., cost of products, operations, processes, jobs, quantities of materials consumed, labor time used etc. for internal planning and control as well as for external reporting. How does cost accounting help In better control over cost? Cost accounting helps in attaining …

What is cost?

Cost Definition Cost is the sacrifice made, usually measured by the resources given up, to achieve a particular purpose. A sacrifice made in order to obtain some goods or services Costs are not always Expenses. Some costs are Assets, other costs are Expenses Expenses are Expired (Used up) Costs Eventually, costs will become expenses. Explanation …

Difference between cost and expense

In manufacturing accounting, it is very much important to have a clear difference between cost and expense, though in general two terms are considered interchangeable. What is Cost Cost? The amount of cash paid or liability incurred for a commodity or service is referred to as the cost of that item. The commodity or service …

Cost accounting formulas

The following formulas can be used to find out different costs. Prime cost = Direct material consumed + Direct labour Conversion Cost = Direct material + Factory overhead Factory cost = Direct material + Direct labour + Factory overhead Cost of Goods Manufactured = Direct material consumed + Direct labour + Factory overhead + Opening …

Job Costing

What is Job Costing? – Definition Job costing is a system in which costs are assigned to batches or job order of production. Job cost sheet has to be made under this costing system. Job costing is the method of costing which applied to ascertain the costs of specific jobs or work -orders which are treated …

Equivalent units of production

Definition of Equivalent units of production A department’s output is always stated in terms of equivalent units of production. Equivalent units can be defined as the number of units that could have produced given the total amount of manufacturing effort expended for the period under consideration. Explanation The problem of work-in-progress in process industries is …