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JOB AND CONTRACT

COSTING
PREPARED BY: Prabhjot Kaur
Ruchi Puri
Amanpreet Kaur
Poonam Nimoria
Kanupriya Malhotra
Mehak Jhamb
INDEX
• JOB COSTING
• CONTRACT COSTING
• PRACTICAL QUESTION
• DIFFERENCE
• EMPLOYMENT OF JOB COSTING
• APPLICATION OF JOB COSTING
JOB COSTING
CIMA defines it as:
“that form of specific order costing which applies when work is
undertaken to customers’ special requirements and each order is
of comparatively short duration (compared to those to which
contract costing applies). The work is usually carried out within a
factory or workshop and moved through processes and operations
as a continuously identifiable unit. The term may also be applied to
work such as property repairs and the method may be used in the
costing of internal capital expenditure jobs.”

Features:
•Costs of materials, labor and overheads accumulated
•Profit or loss determined
•Costs are estimated and price is quoted
OBJECTIVES OF JOB COSTING
•Finding out the cost of production
•More accurate estimates about the cost
•Control operational inefficiency

A system of job costing should be adopted after


considering the following two factors:
A) Continuously identifiable (raw material stage ->stage of
completion)
B) The system is very expensive
CONTRACT COSTING
According to CIMA, London

“ CONTRACT COSTING is that form of


specific order costing which applies where
work is undertaken to customer’s special
requirements and each order is of long term
duration.”
SPECIAL ASPECTS

 MATERIALS

- Materials are specially purchased for a contract.


- Any material returned to stores.
- Sale of surplus material at contract site.
- Contractee himself has supplied materials for
the contract.
CONTINUED….

 LABOUR
- Labour employed or working at site are treated
as direct labour.

 PLANT
- Plant specifically purchased for a contract.
- The services of a particular plant are required
only for a short period.
COMMON TERMS IN CONTRACT
COSTING
Escalation clause/material and labour
variance clause
 A provision in a contract for adjustment
in prices quoted and accepted, in the event of
specified contingencies.
Avoid future disputes
Safeguarding principle for both contractor
and contractee
Work certified and
Payment-
• Progress payment
• Certificate stating satisfactory progress by
the contractee
or his nominee
• Retention money

TREATMENT
 Contractee’s account dr.
To contract account
(being the value of work certified)
 Bank account dr.
To contractee’s account
Second method

 Work in progress account dr.


To contract account
(being the value of work certified)

 Bank account dr.


To contractee account
(being cash received )
Work uncertified

Work done has not reached a


stipulated stage at the end of a
period:

Work in progress account dr.


To contract account
Materials and stored at
site

Unutilized material at the end


of accounting period:

Material or site account


dr.
To contract
account
 Work-in-progress: It includes value of
work certified & cost of work uncertified.
Balance sheet as on………….

ASSETS AMOUNT
Work in progress:
Value of work certified XXX
Cost of work uncertified XXX
Less: Reserve for unrealised profit
(XXX)
Less:Amount received from
contractee(XXX) XXXXX
Work-in-progress Account
Particulars Amt Particulars Amt

To Contract A/c: By contract A/c


Work certified XXX (Profit reserved) XXX
Work uncertified XXX By balance c/d XXX

XXXX XXXX
Profit on incomplete contracts:
Rules:-
•When work certified is less than 1/4th of
the contract price-
No portion of profit will be transferred to P&L
A/c.
•When work certified is more than 1/4th of
contract price but less than ½ of the
contract price-
1/3rd of the profit disclosed should be taken
to P&L A/c
• When work certified is more than ½ of
the contract price-
2/3rd of the profit disclosed should be taken to
P&L A/c

 PROFIT ON COMPLETED CONTRACTS:-


Contratee's account is debited and Contract
account is credited with contract price.
CONTRACT ACCOUNT
for the year ended 31st March, 1994
DR.
CR.
PARTICULARS AMT PARTICULARS AMT
(Rs.) (Rs.)
To Materials issued to site 750000 By Plant at site 170000
To Planning & Estimating 100000 (200000 – 30000)
costs By Materials at site 20000
To Direct wages paid 400000 By Materials returned 25000
Add: Wages due 27000 427000 from site
To Plant 200000 By Work-in- Progress :
To Plant hire charges 175000 Work Certified 2000000
To Wage related costs 50000 Work Uncertified 14900 2014900
To Site office cost 67800
To Head office expenses 37500
To Direct expenses 90200
To Profit T/F to
Profit & loss A/C 166200
Reserve 166200 332400
2229900 2229900
CONTRACTEE ACCOUNT
for the year ended 31st March ,1994
DR. CR.
PARTICULARS AMT PARTICULARS AMT
(Rs.) (Rs.)
To Balance c/d 1500000 By Bank A/C 1500000

1500000 1500000
EXTRACTS FROM BALANCE SHEET
As on 31st March, 1994
LIABILITIES AMT ASSETS AMT
(Rs.) (Rs.)
Direct Wages Due 27000 Work-in-progress : Work
Certified 2000000
Work Uncertified 14900
2014900
Less : Reserve 166200
1848700
Less: Cash 1500000
Received 348700
Plant at site 170000
Material at site 20000
DIFFERENCE
JOB COSTING CONTRACT COSTING
 Is carried in premises  Contract work is carried out at site.
 An order, unit, lot or batch of  Each contract is a cost unit.
product maybe taken as cost unit.  Most of the expenses are of direct
 Cost is first allocated to cost center nature and are directly charged to
and then charged to individual jobs. respective contract accounts. Only
It is a system of costing in which the general overheads and head office
elements of cost are accumulated expenses are apportioned to
separately for each job or work individual contracts.
undertaken by an organization.  The pricing is generally through
 The process of jobs are fixed basing bidding and external forces have
on the cost and policy of the firm. major influence in fixing the offer
price.
 The duration of job work is smaller.
 Generally the contract work will take
 The value of job work would be
more time to complete.
lesser
 The contract works is bigger in nature
and the value of contract would also
be higher.
Employment of Job Costing
Job costing is employed (used) in the following
cases:-
 Where the production is against the order of the
customer or jobs are executed for different
customers according to there specifications.
 Where each job needs special treatment and no
two orders are necessarily alike.
 There is no uniformity in the flow of production
from one department to another.
 Where the work in progress differ from period to
period basis of the number of jobs in hand.
Application of Job Costing
Job costing is applicable to printing,
furniture, hardware, ship-building,
heavy machinery, general engineering
work, machinery tools, interior
decoration, repairs and other similar
work.
THANK
YOU