CIMA C1Fundamentals Of Management Accounting

Job and Contract Costing

CIMA C1Fundamentals of Management Accounting

Class Slides – Ian Wilson

Prepare ledger accounts for job, batch & process costing systems

Marginal Cost Pricing & Full Cost Pricing to achieve a specified return on sales or return on investment, mark-up & margins

Learning Aims (CIMA)

Jobbing production involving producing items to specific order of a customer.

This is NOT ‘mass production’, each job has its own characteristics.

Costs for each job need to be collected separately, remaining identifiable within the accounts.

Job costs are recorded on ‘job cards’. Once the job is completed, overheads are

added to the job total.

Job Costing

Definitions: Job Costing An order-specific costing technique, used in

situations where each job is different and is performed to the customer's specifications. Job costing involves keeping an account of direct and indirect costs.

Since both types of costs are usually closely related (a job requiring high input of labor and material is likely to consume more power, machine time, supervision time, inspection time, etc.) indirect costs may be applied as an estimated fraction of direct costs

Job Costing

Job costing methods are similar to contract costing and batch costing methods, and are used in construction, motion picture, and shipping industries, in fabrication, repair, and maintenance works, and in services such as auditing.

Read more: http://www.businessdictionary.com/definition

Job Costing

We can tackle Exercise 1 for job 666.

This is given on page 46.

A local jobbing company has just completed a ‘one-off’ job which involved making a specialist frame.

You are asked to complete a cost summary on page 47 of your notes:

Exercise 1

This is another job costing question, you have to prepare a list of costs that should be assigned to the job.

This question throws up some issues about costs that are ‘relevant’

Read the question very carefully:

Exercise 2

Sunflower Ltd. You need to read the question carefully There are several ‘jobs’ being started &

completed You have to prepare the ‘job’ accounts They are ‘T’ accounts.

Exercise 3

What is Batch Costing? Very similar to job costing in that each

batch is separately identifiable In Batch costing, the cost per unit is

calculated as: Total cost for the Batch Number of units in the Batch

Batch Costing

Definition: Batch Costing The identification and assignment of costs

related to producing a set amount of goods. This includes all fixed and variable costs for producing the batch. The unit cost of a batch of goods can be calculated by dividing the batch cost by the number of units produced

Batch Costing

EXAM FOCUS: Try Question 4. This has the look at a typical CIMA exam

question. Again you have 4 choices of possible correct

answers

Exercise 4

Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product.

What is Pricing?

How much to charge for a product or service? This question is a typical starting point for discussions about pricing, however, a better question for a vendor to ask is - How much do customers value the products, services, and other intangibles that the vendor provides?.

What is Pricing?

One that sells or vends What price to charge? What profit to make?

Who is the Vendor?

As a Management Accountant, you will be asked to ‘price’ products based on their cost value.

You will have to consider:1. Mark-up (profit expressed as a % of cost)2. Margin (profit expressed as a % of price)

• We have seen this information before:• No try Exercise 5

Pricing

There are 4 parts to this question:1. Use a mark-up on variable cost of 80% to

calculate price2. What is the profit?3. Use a margin of 60% on total production

cost, what is the price?4. What is the profit?

Exercise 5