Professional Documents
Culture Documents
(3) It facilitates effective cost control by evaluating operational efficiency of each job or works. (4) It helps management to fix selling price of each order or each job. (5) Spoilage and defective works can be easily identified with each job or person. (6) It facilitates the application cost-plus formula of pricing of large contracts. (7) It facilitates the introduction of budgetary control of overheads, since the overheads are charged on predetermined basis to arrive at the total costs.
Disadvantages
(1) This method is relatively involve more labour intensive. Thus, it is expensive. (2) With increase in clerical work, there are chances for committing more errors and mistakes. (3) Job Costing is essentially historical costing. It does not provide for the control of cost unless it is combined with estimated or standard costing system. (4) It is difficult to make cost comparison among different jobs because each job has its own features.
BATCH COSTING
Meaning
In Batch Costing, a lot of similar units which comprise the batch may be used as a cost unit for ascertainment of cost. Separate Cost Sheet is maintained for each batch by assigning a batch number. Cost per unit of product is determined by dividing the total cost of a batch by the number of units of that batch. Batch costing is used in number drug industries, ready made garment industries, electronic components manufacture, TV sets, radio etc.
Where : D = Annual Production or Demand in Units S = Setup Cost per batch C = Annual Holding or Carrying Cost per unit
Contract Costing
Meaning of Contract Costing
Contract costing is that method of costing in cost accounting which is used to collect and identify all the expenses relating to a specific contract. For this purpose, Contractor has to maintain contract ledger in which he has to show contract account. Contract here means an agreement to complete construction of building or any other engineering work which need many days, months or years to complete.
Contract Account
Contact account is that account who shows all the expenses in its debit side. Credit side of this account, we show value contract price or work certified value. Difference between debit and credit side of will show notional profit or loss.
Following are main Contract Expenses and Costs which shows in Contract Account under Contract Costing :1. Material Cost
Material or raw material which is used for construction is the main expense or contract cost and it will be debited in contract account. It is supplied from store or purchased from market directly. If material is transferred from any other contract, then its cost will be adjusted on the basis of material transfer note.
2. Labor Cost
On the basis of wages analysis sheet, labor cost is calculated for a specific contract order. If same labourer is used more than one contract, then time devoted to each contract is calculated and on this basis, labor cost is allocated.
3. Direct Expenses
Overheads can be allocated on the basis of some % on cost of material, wages or prime cost or MHR (Machine Hour rate) or LHR (Labour Hour Rate)
5. Sub- Contract Cost
It will also include in contract cost, if to complete sub-construction for main construction.
6. Cost of Extra Work.