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:
You are required to calculate the cost of job No. 58 from the above figures.
Note: Calculation of overhead chargeable to Job No. 58 has been made as follows:
The following expenses were incurred for a job during the year ended on 31st March 2019:
Single price for the above job was $1,80,000. You are required to prepare a statement showing the profit earned during the year ended 31.3.2019 from the job and an estimated price of a job which is to be executed in the year 2019-20, charging the same percentage of profit on sales as it was during the year 2019-20. Materials, wages and chargeable expenses will be required of $50,000, $70,000 and $20,000 respectively for the job. The various overheads should be recovered on the following basis while calculating the estimated price:
(a). Factory overheads as a percentage of direct wages.
(b). Administrative and selling and distribution overheads as a percentage of factory cost.
Note: Calculation of various overheads rates and percentage of profit on sales:
Problem No. 3
M/s. Perfect Printers Ltd. operates a printing press. During November 2019, the plant was operating at full capacity. The material and labor costs of Job 101 and all other jobs worked on, in November, are shown below:
In addition to the foregoing costs, factory overhead incurred in November amounted to $44,000. Overhead is allocated to production on the basis of direct labor costs.
You are required to:
(i). Show what factory Profit or Loss on Job 101 would be, using two different methods of accounting for overtime premium. Assume that the contract price for this job is $40,000.
(ii). Indicate under what circumstances each method should be used.
(iii). State whether the profit or loss of the company during November would be affected by the choice of one method or another.
Factory Overhead Recovery Rate = (Factory Overhead / Direct Labor Cost) x 100
= (44,000 / 44,000) x 100 = 100%
(i). (a): If the overtime premium is fully charged to Job No. 101:
(i). (b): If overtime premium is charged pro-rata to all jobs:
(ii). Overtime premium should be charged fully to Job No.101 if it was a rush job and it was done at the request of the customer. But if the overtime work was due to limited production capacity and it was accidental that Job 101 was done during the overtime then premium should be charged pro-rata to all jobs.
(iii). Profit and Loss of the company during November will be affected by the choice of any of the method if all the jobs performed during the month are not completed by the end of the month. If overtime premium is fully charged to Job 101 but is not completed by November 30 then the loss on this job will not be taken in the account of November 2019. Similarly, If overtime premium is charged pro-rata to all the jobs and profit or loss on any job remaining incomplete will be carried over to the next month.
Problem No. 4
The following particulars are drawn from the costing books of a contractor for the month of December, 2019.
The respective Job Accounts showed the following balance in Contract Ledger on 30th November 2019.
Job No. 201 = $3,21,580
Job No. 202 = $1,41,865
A certificate of completion was obtained for Job No. 201; of the balance of this account standing on 30th Nov. 2019, $61,500 was in respect of plant and machinery, the remainder consisting of wages and materials. A machine costing $5,500 specially brought for this contract, was sold during December, 2019 for $2,000. Of the remainder of the balance on plant and machinery $40,000 worth had been utilized on the Job for eight months and the rest for six months. Of the former, half was transferred to Job No. 202 and the whole of the remaining plant was returned to stores. The contract price for Job No. 201 was fixed at $3,75,000.
Prepare Contract Accounts for the two Jobs and state the profit made on Job certified as completed, allowing depreciation on machinery at 15 percent per anum. Assume 10 percent for establishment charges on the cost of wages and materials consumed.
1. Establishment charges in respect of Job No. 201 A/c have been calculated as follows:
2. Depreciation on plant and value of plant returned to stores have been calculated as follows:
Plant Costing $40,000 has been used for 8 months and plant costing $16,000 for 6 months.
Half of the plant having the total depreciated value of $36,000 has been transferred to Job No. 202.