Managerial Acct Chapter 3

Managerial Acct Chapter 3 - Chapter 3 Method of costing...

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Chapter 3 Method of costing Costing has been defined as the technique and process of ascertaining costs. The principles in every type of costing are the same but the methods of analyzing and presenting the costs differ with the nature of business. 1- Job Costing : - is one of the methods of costing and is used when - * Job orders are undertaken in the factory or Workshop *Contracts are taken out to Built Houses, Construct Roads and Bridges. Many companies manufacture goods against orders. They are what are Known as "jobbing type" industries, and generally include printers, Machine tools manufacturers, job foundries (Place where glass or metal is melted and moulded) and general engineering Workshops. The main purpose of job costing is to ascertain Profit or loss on each job undertaken since costs are estimated before accepting a job and actual costs are compared with estimated costs, it is also possible to ascertain whether the estimating was correct/or cost incurred is reasonable. This will help in improving efficiency in operation as well as in revising estimates for future quotation, if necessary. * The Procedure involved in job costing may be Summarized as follows: A- For any job, the cost involved is estimated and on the basis of this estimate price is quoted to the customers. If the job is accepted, a production order is made out by the planning department. B- When an order is received, the production control department allots a production order number to it. Sometimes, the work may be sub-divided and sub- numbers may also be allotted to various works constituting it, in addition to one master order number, however, the method of numbering will vary depending upon whether or not C- The costs are collected and recorded for each job or batch of similar job under separate production order number. And all purchases of material and supplies are charged to stores as purchased because the storekeeper is accountable for them. The subsidiary records for stores control would be perpetual inventory record. Generally job cost sheet is maintained for each job. And the basis of collection of cost is:-
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* Material : - Materials Requisition, Bill of materials or materials issue analysis sheet. As raw materials are needed for the production process, they are transferred from warehouse to the production department. To authorize the release of materials, the production department supervisor completes a material requisition form . A copy of the materials requisition form goes to the cost accounting department is called a source document. See the exhibit below:- Ace Construction Company Materials Requisition Number 106-04 Approved by JRS Received by RHS * Work-in-process the account is maintained in The cost ledger and it represent the Job under production. The account is periodically debited with all cost incurred in execution of the jobs such as (DM, DL and estimated MOH. A summary of completed jobs is prepared and the work-in-process account is credited with the cost of completed jobs .this transfer costs from one inventory
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