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 COSTINGCIMA 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 TERMS 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 disputesSafeguarding principle for both contractor and contractee

Work certified and Payment-

• Progress payment• Certificate stating satisfactory progress by the contractee or his nominee • Retention money

TREATMENT Contractee’s account dr. To contract account (being the value of work certified) Bank account dr. To contractee’s account (being amount of cash received)

Second method

Work in progress account dr. To contract account (being the value of work certified)

Bank account dr. To contractee account (being cash received )

Work uncertified

Work done has not reached a stipulated stage at the end of a period:

Work in progress account dr. To contract account

Materials and stored at site

Unutilized material at the end of accounting period:

Material or site account dr. To contract account

Work-in-progress: It includes value of work certified & cost of work uncertified.

Balance sheet as on………….

ASSETS AMOUNT

Work in progress:Value of work certified XXX

Cost of work uncertified XXX

Less: Reserve for unrealised profit (XXX)

Less:Amount received from contractee(XXX)

XXXXX

Work-in-progress Account

Particulars Amt Particulars Amt

To Contract A/c:

Work certified

Work uncertified

XXX

XXX

By contract A/c

(Profit reserved)

By balance c/d

XXX

XXX

XXXX XXXX

Profit on incomplete contracts: Rules:-•When work certified is less than 1/4th of the contract price-No 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 price-

1/3rd of the profit disclosed should be taken to P&L A/c

• When work certified is more than ½ of the contract price-

2/3rd of the profit disclosed should be taken to P&L A/c

PROFIT ON COMPLETED CONTRACTS:-

Contratee's account is debited and Contract account is credited with contract price.

CONTRACT ACCOUNT for the year ended 31st March, 1994 DR. CR. PARTICULARS AMT

(Rs.)

PARTICULARS AMT

(Rs.)

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

750000

100000

427000

200000

175000

50000

67800

37500

90200

332400

2229900

By Plant at site

(200000 – 30000)

By Materials at site

By Materials returned

from site

By Work-in- Progress :

Work Certified 2000000

Work Uncertified 14900

170000

20000

25000

2014900

2229900

CONTRACTEE ACCOUNT

for the year ended 31st March ,1994

DR. CR .

PARTICULARS AMT

(Rs.)

PARTICULARS AMT

(Rs.)

To Balance c/d 1500000

1500000

By Bank A/C 1500000

1500000

EXTRACTS FROM BALANCE SHEET As on 31st March, 1994

LIABILITIES AMT

(Rs.)

ASSETS AMT

(Rs.)

Direct Wages Due 27000 Work-in-progress : Work Certified 2000000

Work Uncertified 14900

2014900

Less : Reserve 166200

1848700

Less: Cash 1500000

Received

Plant at site

Material at site

348700

170000

20000

DIFFERENCEJOB 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 COSTING 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 accounts. 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 CostingJob 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.

THANK YOU