Question

1-For Accountancy firm, which method of costing is suitable in use?

2- For job costing system/method, which doc of std in use for calculation ?

Answer 1

1, Uniform Costing is suitable for Accountancy Firm

Uniform costing: This is not a separate method of costing, but rather a system in which a number of firms in the same industry use the same method of costing, using agreed-on principles and standard accounting practices. This helps in setting the price of the product and in inter-firm comparisons.

2,

Definition of job costing

Job costing is a costing method used to determine the cost of specific jobs, which are performed according to the customer’s specifications. It is a basic costing method which is applicable where work consists of separate projects or contract jobs.

Documents used in job costing

Manufacturing or production order: This document authorizes the manufacturing or production department to produce a specified quantity of a product which constitutes the job.

Cost sheet: In job costing, a cost sheet is often used to record costs incurred in stages of production. The cost sheet and job order work may also be combined, when costs are recorded on the production order document.

Other documents: The other documents such as material requisition slips, tools and spares order, time tickets, inspection order etc., are used by the dispatching department as a control mechanism to carry out the dispatching functions.

How to Calculate Job Costing

Job costing is calculated by accumulating the cost of labor, materials and overhead on a specific job. The accounting activities involved in calculating job costing are:

CALCULATE LABOR COSTS

Calculate how much it costs your business to employ all staff members who will work on the project per day. Multiply the payroll day rate by the amount of time you estimate you’ll need to complete the job. If you’ll rely on subcontractors for work your company doesn’t complete itself, factor those costs into your total labor costs for the job. It can help to get an estimate from each of these contractors.

CALCULATE MATERIAL COSTS

Calculate the cost of all materials used on the job. For a construction business, this would include materials such as lumber, wiring, screws and more. You may choose to add a margin to these materials to cover other related costs including wastage or delivery fees.

ESTIMATE APPLIED OVERHEAD

Overhead is the most difficult cost to calculate, because you’ll need to rely on an approximation instead of a more exact figure. You’ll need to estimate the total overhead costs factoring into the job, including rent on your office, administrative costs and depreciation on the equipment used. Many businesses apply a blanket overhead fee to each project, such as 10 percent per job. An accountant can help you analyze your business and develop a specific approach to overhead. Or, you can calculate your predetermined overhead rate.

Written as an equation, job costing is calculated like this:

Total Job Cost = Direct Materials + Direct Labor + Applied Overhead