BBA Cost Accounting Study Material to Output Job And Batch Costing Short Notes

Advantages

The advantages of job costing are as follows:

  • The profit or loss made on each job can be measured if cost is set against the price tendered for the job.
  • It generates the cost data useful for the analysis and control by the management.
  • It highlights whether or not a job is likely to be profitable or not.
  • It readily fits into the double entry system, and lends itself to performance evaluation and review of costs.
  • Job costing enables a comparison to be made with performance on other jobs so that inefficiencies are identified and rectified.
  • Some jobs are negotiated on a ‘cost plus’ basis, if there is difficulty in estimating a price for a certain job and the customer agrees to pay the cost of the job plus an agreed percentage as profit margin. In cost plus jobs it is essential to maintain reliable costing records.
  • The costs incurred to date on the job are known before the job is completed, and any mistakes or excessive costs show up at an early stage.

The major disadvantage of job costing it is too expensive, time consuming in maintenance of cost records for each job undertaken.

Bba Cost Accounting Study Material to Output Job And Batch Costing Short Note Of Batch Costing

Batch Costing

CIMA defines batch costing as “ that form of specific order costing which applies where similar articles are manufactured in batches either for sale or for use within the undertaking “.

The batch cost is defined as “aggregated costs relative to a cost unit which consists of a group of similar articles which maintains its identity throughout one or more stages of production”.

The batch costing is used when a quantity of similar and identical products are manufactured together as one job. A batch is a group of similar products and it is treated as a single cost unit. A Batches of identical articles are manufactured to the requirements of a specific order of the customer. The batch costing is used in printing, packaging, automobile and engineering components, textiles, building products etc. job costing can be characterized by a single product or service, but in batch costing, manufacture of similar or identical products will from a batch. The important feature of batch costing is that identical products should be produced and that it should be convenient to group them into a production batch rather than an attempt to separate them and cost them individually. For example, bricks are costed per thousand and it will not be practically viable to analyse the production cost per brick. The costs of each batch are ascertained in the same way as for an individual job. Each batch is identified by a number, and careful recording of materials issued, scrap , labour time and overhead for the batch will build – up the batch cost. In this way, costs of batches can be compared and variation investigated. A unit cost can be ascertained by dividing the batch cost by the number of units in a batch as follows:

Batch costing may also be similar to continuous operation costing, because for the production costs are not attachable to a single individual as it is being processed but rather the cost of the group of product is averaged over the number of units that are produced in the batch.

Bba Cost Accounting Study Material to Output Job And Batch Costing Short Note Of Economic Batch Production

Economic Batch Production

Companies which produce a number of different lines may organise their production on a batch basis rather than a continuous one. When batch production is used, the company has to decide how large a batch to make at a time and how often to make a batch of a particular product. The problem is similar to the economic order quantity problem. The ordering of a fixed quantity from an outside supplier is replaced by the production of a fixed amount. The cost per order in the previous model is therefore, replaced by the cost of set up.

Total Annual Cost of Production   = Annual Cost of Set up + Annual Holding Cost

The simple basic economic batch quantity (EBQ) production may be presented in the following illustrations:

Illustration

A Ltd. Is committed to supply 24,000 bearings p.a. to B Ltd. On a steady basis. It is estimated that it costs 10 paise as inventory holding cost per bearing p.m. and that the set-up cost per run of bearing manufacturing is Rs. 324. (1) What should be the optimum run size for bearing manufacturing? (2) Would be the interval between two consecutive optimum runs? (3) Find out the minimum inventory cost per annum.

Solution

Bba Cost Accounting Study Material to Output Job And Batch Costing Short Note Of Operating Costing

Operating Costing

Operating costing is a refined method of process costing. In process costing, each process or stage of production is costed separately. The manufacture of a product may consist of several operations. In operation costing, costs are collected for each operation instead of each process or stage of manufacture. This will facilitate better control of costs than in process costing. The procedure of operation is similar to that of process costing. Materials, labour and other expended are collected separately for each operation. At the end of accounting period, the unit operation cost may be computed by dividing the total operation cost by total output. The cost of each such operation is called ‘operation cost’. Operation costing is applied where standardised goods or services result from a sequence of repetitive and more or less continuous operations to which costs are collected and averaged over the units produced during the period. When the goods are processed through different operations, rejection may arise at the end of such operation and to determine the cost of each operation for a specified quantity of output, due consideration will be given to the cumulative effect on conversion cost of the rejection of each such operation. Operation costing is applied where continuous operations or processes produce identical units of output.

Bba Cost Accounting Study Material to Output Job And Batch Costing Short Note Of Multiple Costing

Multiple Costing

Multiple costing is not a separate method of costing but application of more than one method of costing in respect of same product. This method is used in industries where numbers of components or parts are assembled into a final product. Multiple costing is used in industries like automobile, bicycles, airplanes, electronics, typewriters etc. in such industries each component or part processed differently with different costs identified to it. For example, in bicycles industry the cost of components will be ascertained through batch costing. For final products i.e., bicycles, cost of each bicycle is ascertained by using output or single costing.

Bba Cost Accounting Study Material to Output Job And Batch Costing Short Note 

Summary

  • Output costing is applied where the concern produce single product and the whole production process involves in manufacture of a single product.
  • Output costing is also called as ‘single costing’ or ‘unit costing’ and is applicable in industries where production is done under highly mechanised environment and different graded of identical product is manufactured.
  • The total cost of production is divided by number of units produced to obtain the cost per unit of the product during the period.
  • The cost of production and profit is ascertained by preparing a cost sheet, which shows the to total cost as well as cost per unit for a particular period.
  • Job costing is a form of specific order costing which is applied where work is undertaken to the specific requirements of the customers and each job takes a small duration for its completion.
  • In job order processing work is carried within a factory or workshop and moves through different identifiable activities.
  • The cost s of each job are recorded in job account and a job cost card is prepared and bears the job number, which is use for collection of all costs to date relating to the job.
  • The profit or loss of each job is measured by preparing the job cost sheet.
  • Batch costing is used when a quantity of similar and identical products are manufactured together as one job. A batch is a group of similar products and is treated as single cost unit and the cost of each batch is ascertained in the same way as per an individual job.
  • The cost per unit can be ascertained by dividing the batch cost with the number of units in a batch.
  • When a manufacturing process is meant for producing different lines and a grade of production, the production is done on batch basis where economic order quantity concept can be adopted in determination of economic batch size of production.
  • The operation costing is similar to process costing, and costs are collected for each operation instead of each process or stage of manufacture.
  • Multiple costing is not a separate method but application of more than one method of costing in respect of the same product where numbers of parts or components are to be assembled into a final product.

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