Job And Contract Costing 6g4i1d

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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