CA Intermediate · Cost and Management Accounting

Job Costing: formula sheet

Full chapter guide

Key formulas

Job cost: Job cost = Direct material + Direct labour + Direct expenses + Absorbed overheads; Prime cost plus overheads charged to the job. Overheads are absorbed through a predetermined rate.
Price of a job: Price = Total job cost + Profit; If profit is given as a % on cost, Profit = % × Cost. If it is a % on selling price, Price = Cost ÷ (1 − %).
Overhead absorption rate (labour hour basis): Rate = Budgeted overheads ÷ Budgeted direct labour hours; Other bases are machine hour or a percentage of direct wages or direct material. Choose the base that matches how the overhead is incurred.
Prime cost of a job: Prime cost = Direct material + Direct labour + Direct expenses; Direct material is net of any material returned to stores or transferred to another job.
Factory (works) cost: Factory cost = Prime cost + Factory overheads absorbed; Add work-in-progress adjustments only if the question gives opening or closing WIP.
Total cost of a job: Total cost = Factory cost + Administration overheads + Selling and distribution overheads; Use the rate given for each overhead. Selling overheads normally apply only to jobs sold.
Selling price: Price = Total cost + Profit; If profit is a % on price, Price = Total cost ÷ (1 − profit %). If on cost, Price = Total cost × (1 + profit %).
Overhead absorption rate (% of direct wages): Rate = (Overheads ÷ Direct wages) × 100; Other bases: % of direct material, % of prime cost, labour hour rate or machine hour rate.
Labour hour rate: Rate per hour = Overheads ÷ Total labour hours; Overhead for a job = Rate × hours worked on that job.
Overhead absorption rate: Rate = Budgeted overheads ÷ Budgeted base (labour hours, machine hours, direct wages etc.); Use budgeted figures for the rate. Use actual base units of the job to absorb.
Overhead absorbed by a job: Overhead = Rate × Actual base units used by the job; For a percentage-of-wages rate: Rate % = Overheads ÷ Direct wages × 100.
Prime cost: Prime cost = Direct materials + Direct labour + Direct expenses; Direct expenses chargeable to a job, such as a special tool or hire, are added here.
Total cost of a job: Total cost = Prime cost + Factory overhead + Administration and other overheads (as given); Apply each overhead on the base stated in the question, such as factory cost or prime cost.
Price with profit on cost: Price = Total cost × (1 + Profit %); Profit on cost of 25% means profit is 25% of cost.
Price with profit on sales: Price = Total cost ÷ (1 − Profit % on sales); Profit on sales of 20% means cost is 80% of price.
Converting profit percentages: Profit on sales % = Profit on cost % ÷ (100 + Profit on cost %) × 100; 25% on cost equals 20% on sales. 20% on cost equals 16⅔% on sales.
Cost per good unit with normal spoilage: Cost per good unit = (Total cost − Scrap value of normal spoilage) ÷ Good units; Abnormal loss is valued at cost per unit started less its scrap value, and goes to Costing P&L, not to the job.
Cost per unit of a batch: Cost per unit = Total batch cost ÷ Number of good units in the batch; Total batch cost = material + labour + direct expenses + overheads, including the set-up cost of that batch.
Number of batches: Number of batches per year = Annual demand (D) ÷ Batch size (Q); Annual set-up cost = number of batches × set-up cost per batch.
EBQ (simple form): EBQ = √(2 × D × S ÷ C); D = annual demand, S = set-up cost per batch, C = carrying cost per unit per year. Use when production is treated as instantaneous.
EBQ (with production and demand rates): EBQ = √[(2DS ÷ C) × (p ÷ (p − d))]; p = daily production rate, d = daily demand rate, p > d. Use when units are added to stock gradually while being sold. Here C is the carrying cost per unit per year. The ratio p ÷ (p − d) has no units, so daily rates are fine.
Total relevant cost at a batch size (simple form): Total cost = (D ÷ Q) × S + (Q ÷ 2) × C; This applies to the simple form, where average stock is Q ÷ 2. At EBQ, the two parts are equal.
Total relevant cost at a batch size (gradual production): Total cost = (D ÷ Q) × S + (Q ÷ 2) × (1 − d ÷ p) × C; In the gradual-production model, average stock is (Q ÷ 2) × (1 − d ÷ p), so the carrying cost term is smaller than (Q ÷ 2) × C. Using (Q ÷ 2) × C here overstates carrying cost. At the EBQ from the adjusted formula, set-up cost equals carrying cost under this expression.
Carrying cost when given as a percentage: C = Cost per unit × carrying cost percentage; Convert the percentage into rupees per unit per year before using the formula.

Quick revision

Job costing applies when each job is separate, made to a customer's order and differs from others.
Each job is costed on its own job cost sheet.
Prime cost = direct material + direct labour + direct expenses.
Works cost = prime cost + factory overheads.
Cost of production adds administration overheads related to production, as the question directs.
Total cost = cost of production + selling and distribution overheads.
Selling price = total cost + profit.
Profit on cost of x% means price = cost × (100 + x) ÷ 100.
Profit on selling price of x% means price = cost × 100 ÷ (100 − x).
Absorb overheads on the basis the question gives, such as a rate per labour hour.
Batch costing treats a batch of identical units as one job; cost per unit = batch cost ÷ units in batch.
EBQ balances set-up cost and carrying cost; it is the batch size where the total of these is lowest.

Common mistakes

Treating job costing as suitable for continuous mass production. Fix: Link job costing with made-to-order work and process costing with continuous, uniform output.
Confusing job costing with batch costing. Fix: In job costing, the order is one distinct job. In batch costing, a lot of identical units is the cost unit and cost per unit is found by dividing by batch size.
Charging indirect material or idle time wages directly to the job Fix: Read the wording. Only cost traceable to the job is direct. Idle time and indirect wages go to overheads unless the question says otherwise.
Using the wrong base to absorb overheads Fix: Underline the base in the question and compute the rate on that base. Apply it to the same base for the job.
Adding profit as a percentage of cost when the question says profit on sales. Fix: If profit is on sales, divide cost by (1 − profit %). Check afterwards that profit ÷ price gives the stated percentage.
Using the budgeted base units instead of the job's actual units to absorb overhead. Fix: Rate uses budgeted figures. Absorption = rate × the job's own hours, wages or machine hours.
Using monthly demand or a monthly carrying cost with annual figures. Fix: Convert D and C to the same period, normally a year, before using the formula.
Forgetting to convert the carrying cost percentage into rupees per unit. Fix: Compute C = unit cost × percentage first. Then use C in the formula.

Exam tips

Start every theory answer with a one-line definition. It is the easiest mark to secure.
For 'difference between job costing and process costing', give at least four points in two columns: nature of production, cost unit, cost sheet and WIP treatment.
Use one real example per part, such as a printing press or a repair workshop. Examples show understanding.
In MCQs, the words 'specific order' and 'job cost sheet' almost always point to job costing, so spot them first.
Expect this topic to feed into numericals on job cost sheets, so learn the cost sheet layout alongside the theory.
Questions often give a quotation task: estimate cost, then add profit. Present the cost sheet in a clean vertical format with all subtotals.
Check whether profit is on cost or on selling price before you calculate. Mention the basis in your answer.
In MCQs, watch for returns to stores, transfers between jobs and idle time. These change the direct cost figures.