JOB AND CONTRACT COSTING PREPARED BY:
Prabhjot Kaur Ruchi Puri Amanpreet Kaur Poonam Nimoria Kanupriya Malhotra Mehak Jhamb
INDEX • • • • • •
JOB COSTING CONTRACT COSTING PRACTICAL QUESTION DIFFERENCE EMPLOYMENT OF JOB COSTING APPLICATION OF JOB COSTING
JOB COSTING CIMA defines it as: “that form of specific order costing which applies when work is undertaken to customers’ special requirements and each order is of comparatively short duration (compared to those to which contract costing applies). The work is usually carried out within a factory or workshop and moved through processes and operations as a continuously identifiable unit. The term may also be applied to work such as property repairs and the method may be used in the costing of internal capital expenditure jobs.” Features: •Costs of materials, labor and overheads accumulated •Profit or loss determined •Costs are estimated and price is quoted
OBJECTIVES OF JOB COSTING •Finding out the cost of production •More accurate estimates about the cost •Control operational inefficiency A system of job costing should be adopted after considering the following two factors: A) Continuously identifiable (raw material stage ->stage of completion) B) The system is very expensive
CONTRACT COSTING According to CIMA, London “ CONTRACT COSTING is that form of specific order costing which applies where work is undertaken to customer’s special requirements and each order is of long term duration.”
SPECIAL ASPECTS MATERIALS
- Materials are specially purchased for a contract. - Any material returned to stores. - Sale of surplus material at contract site. - Contractee himself has supplied materials for the contract.
CONTINUED…. LABOUR
- Labour employed or working at site are treated as direct labour. PLANT
- Plant specifically purchased for a contract. - The services of a particular plant are required only for a short period.
COMMON IN CONTRACT COSTING Escalation clause/material and labour variance clause A provision in a contract for adjustment in prices quoted and accepted, in the event of specified contingencies. Avoid future disputes Safeguarding principle for both contractor and contractee
Work Payment-
certified
and
• Progress payment • Certificate stating satisfactory progress by the contractee or his nominee • Retention money TREATMENT Contractee’s dr. To contract (being the value of work certified) Bank dr. To contractee’s
Second method Work in progress dr. To contract (being the value of work certified) Bank dr. To contractee (being cash received )
Work uncertified Work done has not reached a stipulated stage at the end of a period: Work in progress dr. To contract
Materials and stored at site Unutilized material at the end of ing period: Material or site dr. To contract
Work-in-progress: It includes value of work certified & cost of work uncertified.
Balance sheet as on…………. ASSETS Work in progress: Value of work certified Cost of work uncertified
AMOUNT XXX XXX
Less: Reserve for unrealised profit (XXX)
Less:Amount received from contractee(XXX)
XXXXX
Work-in-progress Particulars To Contract A/c: Work certified Work uncertified
Amt
XXX XXX
XXXX
Particulars By contract A/c (Profit reserved) By balance c/d
Amt
XXX XXX
XXXX
Profit
on incomplete contracts:
Rules:•When work certified is less than 1/4th of the contract priceNo portion of profit will be transferred to P&L A/c. •When
work certified is more than 1/4th of contract price but less than ½ of the contract price1/3rd of the profit disclosed should be taken to P&L A/c
•
When work certified is more than ½ of the contract price2/3rd of the profit disclosed should be taken to P&L A/c
PROFIT
ON COMPLETED CONTRACTS:-
Contratee's is debited and Contract is credited with contract price.
CONTRACT for the year ended 31st March, 1994 DR.
PARTICULARS To Materials issued to site To Planning & Estimating costs To Direct wages paid 400000 Add: Wages due 27000 To Plant To Plant hire charges To Wage related costs To Site office cost To Head office expenses To Direct expenses To Profit T/F to Profit & loss A/C 166200 Reserve 166200
CR.
AMT (Rs.)
750000 100000
427000 200000 175000 50000 67800 37500 90200
332400 2229900
PARTICULARS
AMT (Rs.)
By Plant at site 170000 (200000 – 30000) By Materials at site 20000 By Materials returned 25000 from site By Work-in- Progress : Work Certified 2000000 Work Uncertified 14900 2014900
2229900
CONTRACTEE for the year ended 31st March ,1994 DR.
PARTICULARS To Balance c/d
CR.
AMT (Rs.)
PARTICULARS
AMT (Rs.)
1500000 By Bank A/C
1500000
1500000
1500000
EXTRACTS FROM BALANCE SHEET As on 31st March, 1994 LIABILITIES Direct Wages Due
AMT (Rs.) 27000
ASSETS Work-in-progress : Work Certified 2000000 Work Uncertified 14900 2014900 Less : Reserve 166200 1848700 Less: Cash 1500000 Received Plant at site Material at site
AMT (Rs.)
348700 170000 20000
DIFFERENCE JOB COSTING
CONTRACT COSTING
Is carried in premises An order, unit, lot or batch of product maybe taken as cost unit. Cost is first allocated to cost center and then charged to individual jobs. It is a system of costing in which the elements of cost are accumulated separately for each job or work undertaken by an organization. The process of jobs are fixed basing on the cost and policy of the firm. The duration of job work is smaller. The value of job work would be lesser
Contract work is carried out at site. Each contract is a cost unit. Most of the expenses are of direct nature and are directly charged to respective contract s. Only general overheads and head office expenses are apportioned to individual contracts. The pricing is generally through bidding and external forces have major influence in fixing the offer price. Generally the contract work will take more time to complete. The contract works is bigger in nature and the value of contract would also be higher.
Employment of Job Costing Job costing is employed (used) in the following cases: Where the production is against the order of the customer or jobs are executed for different customers according to there specifications. Where each job needs special treatment and no two orders are necessarily alike. There is no uniformity in the flow of production from one department to another. Where the work in progress differ from period to period basis of the number of jobs in hand.
Application of Job Costing Job costing is applicable to printing, furniture, hardware, ship-building, heavy machinery, general engineering work, machinery tools, interior decoration, repairs and other similar work.
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