Job, Batch, and Service Costing
1 Introduction
Most costing questions in the examination relate to the costing of units of production which has been explained in earlier chapters. However, there are three situations which need slightly different thinking - job costing, batch costing, and service costing.
2 Job Costing
Job costing is relevant in the situation where a customer orders a specific job (as opposed to simply purchasing goods that we already produce in quantity).
In this situation the job is costed separately, with all associated costs listed to arrive at a total cost.
The estimated costs for job XXX are as follows:
Direct materials 4 kgs at $25 per kg
Labour 10 hours @ $5 per hour
Variable overheads are recovered at the rate of $2 per direct labour hour.
Fixed production overheads are absorbed at the rate of $4 per direct labour hour.
Other, non-production, overheads are charged at the rate of $100 per job.
What is the total cost of job XXX?
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3 Batch costing
Batch costing is effectively the same as job costing except that we cost out a batch of units.
Once we have calculated the cost of a batch, we then divide the cost by the number of units in the batch to arrive at a cost per unit.
Job YYY is the production of a batch of 1,000 units and the estimated costs are as follows:
Direct materials 50 kgs at $25 per kg
Labour 100 hours @ $5 per hour
Variable overheads are recovered at the rate of $6 per direct labour hour.
Fixed production overheads are absorbed at the rate of $10 per direct labour hour.
Other, non-production, overheads are charged at the rate of $200 per job.
What is the cost per unit produced?
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4 Service costing
Service industries are those that provide a service as opposed to manufacturing a product. Examples include hotels, hairdressers, and airlines.
Just as with normal costing for manufacturing businesses, we need a cost unit, but the problem is what to use as the cost unit.
Usually it will be what is known as a composite cost unit, which is a combination of two variables.
For example, a train company may calculate the cost per passenger kilometer,
A hotel may calculate the cost per guest per night.
Last year an airline carried a total of 150,000 kg of excess baggage over a total distance of 6,000 km. The total cost of the extra fuel was $27,000,000.
What was the cost per kg/km?
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Job, Batch, and Service Costing
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