CIMA BA2 Syllabus C. PLANNING AND CONTROL - Job and Batch Costing - Notes ^{1 / 7}

Job costing

- is a costing method applied where work is undertaken to customers' special requirements

- each order is of comparatively short duration

- production is usually carried out in accordance with the special requirements of each customer

- it is usual for each job to differ in one or more respects from another job

- the main aim of job costing is to identify the costs associated with completing the order

- individual jobs are given a unique job number and the selling prices of jobs are calculated by adding a certain amount of profit to the cost of the job

Illustration

For Job 1300:

Direct materials $90
Direct labour $150 (for 10 labour hours)
Direct expenses $60

Production overheads are absorbed at $50/direct labour hour

Non production overheads are 130% of prime cost.

What is the total cost of the job?

What is the final selling price with a profit mark up of 20%?

• Solution

  Direct materials $90
  Direct labour $150
  Direct expenses $60
  Prime cost  $300

  Production overheads (10 labour hours x $50/hour) $500
  Non production overheads (130% * $300) = $390

  Total cost of the job $1,190

  Profit mark up = 20% x $1,190 = $238

  Selling price $1,190 + $238 = $1,428

How do we calculate profits?

• Mark up

  This is a % on the cost price.

  Therefore, here cost is 100%

  So, if we wanted a mark up of 20%

  Sales 120%
  Profit 20%
  Cost 100% 

  This is shown in our example above

  Total cost of the job $1,190 = 100%

  Profit mark up = 20% x $1,190 = $238

  Selling price $1,190 + $238 = $1,428 = 120%

• Margin 

  This is a % on the sales price.

  Therefore, here sales price is 100%

  So, if we wanted a margin of 20%

  Sales 100%
  Profit 20%
  Cost 80%

  So with the same example above

  Sales 100% = $1,190/80 x 100 = $1,487.5
  Profit 20% = $1,190/80 x 20 = $297.5
  Cost 80% = $1,190

Batch costing

Batch costing is similar to job costing in that each batch of similar articles is separately identifiable. 

A batch is a group of similar articles which maintains its identity during one or more stages of production and is treated as a cost unit.

The cost per unit manufactured in a batch is the total batch cost divided by the number of units in the batch.

                                             Total production cost of batch
Cost per unit in batch =  ------------------------------
                                                Number of units in batch

The selling prices of batches are calculated by adding a profit to the cost of the batch

 i.e. very similar to job costing