## Job Costing

### Definition

CIMA London defines Job Costing as:

> "The category of basic costing methods which is applicable where the work consists of separate contracts, jobs or batches, each of which is authorised by a specific order or contract."

Each job is a distinct cost unit tracked individually from commencement to completion.

### Suitability of Job Costing

Job costing is appropriate when:

Jobs are executed for different customers according to their specific requirements
No two orders are alike; each job requires special treatment
Work-in-progress varies period to period based on jobs in hand
Industries: Ship building, road construction, heavy machinery manufacturing, printing, repairs

### Basic Objectives of All Costing

1. Ascertainment — Analyse and determine the cost of each unit of production

2. Control — Regulate and control costs throughout production

3. Profitability — Determine the profitability of each job

### Process of Job Costing

1. Prepare a separate Job Cost Sheet for each job

2. Record cost of materials issued to the job (from Stores Requisitions)

3. Record employee (labour) costs from job time cards

4. On completion, add overhead charges to determine total expenditure

---

### Job Cost Sheet — Structure

Header Information:

Job No., Description, Blueprint No., Material No., Reference No.
Quantity ordered, Date of delivery, Date commenced, Date finished

Body (running costs):

Date	Reference	Details	Material (₹)	Labour (₹)	Overhead (₹)
...	...	...	...	...	...

Summary Section:

Cost Element	Estimated (₹)	Actual (₹)
Direct material cost
Direct wages
Production overhead
Production Cost
Admin, Selling & Distribution overheads
Total Cost
Profit / Loss
Selling Price

Bottom: Units produced, Cost per unit, Prepared by, Checked by

---

### Collection of Materials Cost

#### Step 1 — Tracing Direct Materials to Jobs

Separate Stores Requisitions are raised for each job to segregate material costs
A Bill of Materials can serve as the basis for preparing requisitions

#### Step 2 — Material Abstract / Analysis Book

After requisitions are priced, costs enter the Material Abstract Book
Direct material costs per job are summarised and posted to Job Cost Sheets in the WIP Ledger
Indirect material costs are posted periodically to the Overhead Expenses Ledger by standing order/expense code

#### Step 3 — Special Purchases

Materials purchased exclusively for a specific job are charged directly to that job — they bypass the Stores Ledger entirely

#### Step 4 — Surplus Material Handling

Situation	Document	Accounting Entry
Returned to stores	Stores Debit Note / Shop Credit	Dr. Stores Ledger Control A/c; Cr. WIP (Job A/c)
Transferred to another job	Material Transfer Note	Dr. WIP (Receiving Job); Cr. WIP (Originating Job)

---

### Collection of Labour Cost

#### Direct Labour

Attributed to specific jobs via Job Time Cards / Sheets
Recorded time × applicable rate → entered in the Labour Abstract / Analysis Book
Posted to individual Job Cost Sheets in the WIP Ledger

#### Idle Time

Recorded on the job time card or a separate Idle Time Card per worker
Allocated to standing order expense code numbers (treated as indirect/overhead, not charged to a specific job)

#### Accumulation

Labour Abstract accumulates all direct labour costs per job
Summary posted to Job Cost Sheets

Worked example

### Example 1

Job Cost Sheet — Complete Example:

Job No. 101 | Customer: XYZ Ltd | Quantity: 100 units

Cost Element	Calculation	Amount (₹)
Direct materials (Stores Requisition No. 45)	As issued	15,000
Direct wages (50 hours × ₹120/hr from time cards)		6,000
Production overhead (@ 80% of direct wages)	80% × ₹6,000	4,800
Production Cost		25,800
Admin overhead (@ 10% of production cost)	10% × ₹25,800	2,580
Selling & distribution overhead		1,200
Total Cost		29,580
Profit		5,420
Selling Price		35,000

Cost per unit = ₹29,580 ÷ 100 = ₹295.80

### Example 2

Surplus Material Transfer:

Job 205 has 50 kg of unused material (₹5,000). 20 kg (₹2,000) is returned to stores; 30 kg (₹3,000) is transferred to Job 206.

Entries:

1. Return to stores: Dr. Stores Ledger Control A/c ₹2,000 → Cr. WIP (Job 205) ₹2,000

Supporting document: Stores Debit Note

2. Transfer to Job 206: Dr. WIP (Job 206) ₹3,000 → Cr. WIP (Job 205) ₹3,000

Supporting document: Material Transfer Note

Result: Job 205's WIP A/c is reduced by ₹5,000 in total.

⚠️ Common exam mistakes

Using a single job cost sheet for multiple similar jobs — each job must have its own separate cost sheet regardless of similarity
Charging idle time to the specific job a worker was assigned to — idle time must be recorded on idle time cards and allocated to overheads (standing order codes), not to individual jobs
Routing special purchases (materials bought exclusively for one job) through the Stores Ledger — these are charged directly to the job, bypassing the Stores Ledger
Forgetting to credit the Job Cost account when surplus materials are returned to stores — the job account must be reduced by the value of materials returned
Failing to adjust for over/under-absorbed overhead at period end — if overhead is applied using a pre-determined rate, the absorption difference must be written off to Costing P&L

Bare-Act text Definition of Job Costing · CIMA London — Terminology of Cost Accountancy · click to expand

The category of basic costing methods which is applicable where the work consists of separate contracts, jobs or batches, each of which is authorised by specific order or contract.

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Job Costing — Process, Cost Sheet, and Cost Collection

Worked example

⚠️ Common exam mistakes