CIMA C1 Unit 8 2012 [Read-Only]

Fundamentals Of Management Accounting

Job and Contract Costing

Fundamentals of Management Accounting

Class Slides – Ian Wilson

� Prepare ledger accounts for job, batch & process costing systems

� Marginal Cost Pricing & Full Cost Pricing to achieve a specified return on sales or return on investment, mark-up & margins

� Jobbing production involving producing items to specific order of a customer.

� This is NOT ‘mass production’, each job has its own characteristics.

� Costs for each job need to be collectedseparately, remaining identifiable within the accounts.

� Job costs are recorded on ‘job cards’.

� Once the job is completed, overheads are added to the job total.

� Definitions: Job CostingDefinitions: Job CostingDefinitions: Job CostingDefinitions: Job Costing� An order-specific costing technique, used in situations where each job is different and is performed to the customer's specifications. Job costing involves keeping an account of direct and indirect costs.

� Since both types of costs are usually closely related (a job requiring high input of labor and material is likely to consume more power, machine time, supervision time, inspection time, etc.) indirect costs may be applied as an estimated fraction of direct costs

� Job costing methods are similar to contract costing and batch costing methods, and are used in construction, motion picture, and shipping industries, in fabrication, repair, and maintenance works, and in services such as auditing.

� Read more: http://www.businessdictionary.com/definition

� We can tackle Exercise 1 for job 666.

� This is given on page 46.

� A local jobbing company has just completed a ‘one-off’ job which involved making a specialist frame.

� You are asked to complete a cost summary on page 47 of your notes:

� This is another job costing question, you have to prepare a list of costs that should be assigned to the job.

� This question throws up some issues about costs that are ‘relevant’

� Read the question very carefully:

� 4th day today

� Registers – phones – e-mails – in class

� End of chapter questions

� Re-cap on Job Costing

� Batch Costing

� Marginal Costing

� Process Costing

� Sunflower LtdSunflower LtdSunflower LtdSunflower Ltd.

� You need to read the question carefully

� There are several ‘jobs’ being started & completed

� You have to prepare the ‘job’ accounts

� They are ‘T’ accounts.

� What is Batch Costing?What is Batch Costing?What is Batch Costing?What is Batch Costing?

� Very similar to job costing in that each batch is separately identifiable

� In Batch costing, the cost per unit is calculated as:

� Total cost for the Batch

� Number of units in the Batch

� Definition: Batch CostingDefinition: Batch CostingDefinition: Batch CostingDefinition: Batch Costing

� The identification and assignment of costs related to producing a set amount of goods. This includes all fixed and variable costs for producing the batch. The unit cost of a batch of goods can be calculated by dividing the batch cost by the number of units produced

� EXAM FOCUS:

� Try Question 4.

� This has the look at a typical CIMA exam question.

� Again you have 4 choices of possible correct answers

� Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product.

� How much to charge for a product or service? This question is a typical starting point for discussions about pricing, however, a better question for a vendor to ask is - How much do customers value the products, services, and other intangibles that the vendor provides?.

� One that sells or vends

� What price to charge?

� What profit to make?

� As a Management Accountant, you will be asked to ‘price’ products based on their cost value.

� You will have to consider:

1. Mark-up (profit expressed as a % of cost)

2. Margin (profit expressed as a % of price)

• We have seen this information before:

• No try Exercise 5

� There are 4 parts to this question:

1. Use a mark-up on variable cost of 80% to calculate price

2. What is the profit?

3. Use a margin of 60% on total production cost, what is the price?

4. What is the profit?