Question

“Job order costing method is suitable to be applied in a tailoring business.”

Assess the above statement.

Answer 1

Solution:

As in the given case, above statement is False because tailoring business is suitable for “Batch costing” which is explained below.

Batch costing is a variation of job costing. While job costing is concerned with costing of jobs that are made to a customer’s particular requirement, batch costing is used when production consists of limited repetition work and a definite number of articles are manufactured in each batch to be held in stock for sale to customers generally thus, a batch is a cost unit consisting of a group of identical items.

Batch costing is applied in the manufacture of toys, shoes, readymade garments, component parts, etc. In shoe industry, for example, it is just not economical to manufacture a pair of shoes to meet the requirements of one customer. On the other hand, batches of say 1000 to 50000 shoes of each size, style, color, design etc., are economically made and held in stock for sale on demand.

Batch costing follows the following procedure, where each batch is given a batch number in the same as a job is given a job number. Direct materials, direct labors and direct expenses, which can be identified with the batch, are recorded on the batch cost card. The costing of material requisition and time sheets follows normal job costing principles. When batch is completed, the total cost of the batch is divided by the quantity produced in the batch to arrive at the cost per unit or per dozen etc., as and when required.

As a major cost in producing, a batch is the cost of setting up jigs and tools. This is of the nature of fixed cost and is spread over the total number of articles in the batch so the larger the batch size, the lower is the setting up cost per article.

Hence, from the aforesaid explanation it is clear the job costing is not a relevant method to be applied in a tailoring business.