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Textile Costing · Lecture 09
Costing Systems I — Job Costing
Assigning costs to a distinct job, batch or lot: the six steps, with a 10,000 m printing job.
Job costingAllocation baseActual vs normal costing
When a job is the cost object
In job costing, costs are assigned to a distinct unit, batch or lot of a product or service — something custom-made, such as printing a particular design on a particular fabric, or building a house. A job is a task for which resources are used to bring a distinct product or service to market.
- Identify the job — a lot of fabric to be printed, 10,000 metres.
- Identify the direct costs — fabric consumed, colours and chemicals consumed.
- Identify the indirect-cost pools — utilities, depreciation and other overhead (monthly utilities 3,000,000; overhead 10,000,000).
- Select the cost-allocation base — here production in metres.
- Develop the rate per unit of the base — total pools ÷ monthly production.
- Assign the costs — direct costs plus the allocated indirect cost.
| A | B | C | |||
|---|---|---|---|---|---|
| 1 | Job size (metres) | ||||
| 2 | Grey fabric consumed (metres) | ||||
| 3 | Grey fabric price per metre | ||||
| 4 | Dyes and chemicals for the job | ||||
| 5 | Monthly utilities (indirect pool 1) | ||||
| 6 | Monthly overhead (indirect pool 2) | ||||
| 7 | Total monthly production (allocation base, m) | ||||
| 8 | Indirect cost rate per metre | 20.00 | |||
| 9 | Cost of the job | ||||
| 10 | Fabric | 1,100,000 | |||
| 11 | Dyes and chemicals | 120,000 | |||
| 12 | Utilities and overhead allocated | 200,000 | |||
| 13 | Total cost of job | 1,420,000 | |||
| 14 | Cost per metre of printed fabric | 142.00 | |||
blue = input (edit me)grey = formula (click to see it)
Actual, normal and budgeted costing
- Actual costing
- As above — wait until the end of the period, find the exact indirect costs, then allocate them to the job.
- Normal costing
- Budgeted rather than actual costs are used to compute the indirect-cost rate, so a job can be costed the day it finishes. Direct costs are traced in the same way under both systems.
- Budgeted costing
- Budgeted rates are used even for direct costs.
- Variance
- The cost accounting department compares the standard rate with the actual rate. A favourable variance shows the department is operating efficiently; an unfavourable one alerts management that corrective action may be required. When a job is processed at the standard rate and a variance occurs, the variance is applied to the job orders processed and, if necessary, the shop rate is adjusted.