CMA Intermediate · Cost Accounting

Job Costing: formula sheet

Full chapter guide

Key formulas

Job cost: Job cost = Direct material + Direct labour + Direct expenses + Absorbed factory overhead (+ administration and selling overhead, if charged); Direct items are traced to the job. Overheads are added through a rate.
Overhead absorption rate (predetermined): Rate = Budgeted overhead ÷ Budgeted base (labour hours, machine hours or direct wages); Choose the base that best reflects how the job uses the overhead.
Selling price of a job: Price = Total cost + Profit (profit as a % of cost or of price); Profit on price of 20% means profit is 25% of cost.
Work in progress (job costing): WIP = Sum of costs booked to incomplete jobs; Completed but undelivered jobs are finished goods.
Prime cost: Prime cost = Direct materials + Direct labour + Direct expenses; Direct costs traced to the job through the job number.
Direct labour cost: Labour cost = Hours worked × Wage rate per hour; Hours come from the job card or time ticket.
Overhead absorption: percentage of direct wages: Rate % = (Budgeted overheads ÷ Budgeted direct wages) × 100; Overhead charged to job = Rate % × direct wages of the job.
Overhead absorption: labour hour rate: Rate per hour = Budgeted overheads ÷ Budgeted labour hours; Overhead charged = Rate × labour hours of the job.
Factory cost and total cost: Factory cost = Prime cost + Factory overheads; Total cost = Factory cost + Administration and selling overheads; Use the overhead rates given for each stage; do not mix them.
Selling price with profit: Profit on cost = Total cost × Profit % ; Price = Total cost + Profit; If profit is on selling price, Price = Total cost ÷ (1 − profit %).
Total cost of the job: Prime cost + Factory overheads + Administration overheads + Selling and distribution overheads; Prime cost = direct materials + direct labour + direct expenses.
Overhead absorbed: Overhead = Absorption rate × Base units of the job; Base may be direct labour hours, machine hours or % of direct wages.
Price with profit on cost: Price = Cost × (100 + p) ÷ 100; p is profit as a percentage of cost.
Price with profit on sales: Price = Cost × 100 ÷ (100 − p); p is profit as a percentage of selling price. Profit = Price − Cost.
Converting cost basis to sales basis: Profit % on sales = p ÷ (100 + p) × 100, where p is profit % on cost; Example: 25% on cost = 20% on sales.
Converting sales basis to cost basis: Profit % on cost = s ÷ (100 − s) × 100, where s is profit % on sales; Example: 20% on sales = 25% on cost.
Economic batch quantity (basic): EBQ = √(2 × D × S ÷ C); D = annual demand in units, S = set-up cost per batch, C = carrying cost per unit per year. Use the basic formula when the whole batch is assumed to arrive in stock at once or no production and usage rates are given; use the rate version when they are given.
EBQ with production and usage rates: EBQ = √[2 × D × S ÷ (C × (1 − d ÷ p))]; Use only when the question gives a daily production rate p and a daily usage or demand rate d, with p greater than d. Both rates must be in the same time unit.
Number of batches per year: Batches = D ÷ EBQ; Gives the number of set-ups in the year.
Annual set-up cost: Set-up cost = (D ÷ Q) × S; Q is the batch size.
Annual carrying cost: Carrying cost = (Q ÷ 2) × C; Uses average stock of half the batch size in the basic model.
Cost per unit of a batch: Cost per unit = Total batch cost ÷ Units in the batch; Use good units if the question says some units are spoiled or rejected and asks for cost per good unit.
Normal spoilage, specific to a job: Net loss of normal spoilage = Cost of spoiled units − Sale value of spoiled units; This loss stays in the job, so the good units bear the total job cost less the scrap value.
Normal spoilage, common to all jobs: Debit Stores/Cash with the disposal value; Debit Factory Overhead Control with the net loss (Cost of spoiled units − Disposal value); Credit Job/WIP with the cost of the spoiled units; The net loss enters the overhead rate and is spread over all jobs.
Abnormal spoilage: Debit Stores/Cash with the disposal value; Debit Costing P&L A/c with the net loss (Cost of spoiled units − Disposal value); Credit Job/WIP with the cost of the spoiled units; The loss is removed from the job cost in full. The disposal value goes to stores or cash.
Defectives (rework): Rework cost charged to the job if specific; to factory overhead if common; to Costing P&L A/c if abnormal; Rework cost = extra material + labour + overhead used to correct the units.
Scrap: Scrap value credited to the job or to factory overhead, as the nature of the scrap decides; Scrap of a specific job reduces that job's cost. General scrap is credited to overhead or to Costing P&L A/c.
Cost per good unit with normal spoilage: Cost per good unit = (Total job cost − Scrap value of normal spoilage) ÷ Good units; Use only when the normal spoilage belongs to the job.
Value of WIP: WIP = Material + Labour + Direct expenses + Absorbed factory overhead to date; Exclude selling and distribution cost and profit.

Quick revision

Job costing: cost is collected separately for each customer order, with its own job number.
The job cost sheet is the main record, with materials, labour, direct expenses and overheads.
Materials come from requisitions, labour from job tickets or time records.
Overheads are charged to jobs using a predetermined absorption rate.
Prime cost = direct materials + direct labour + direct expenses.
Price = total cost + profit; check if profit is on cost or on selling price.
Profit on selling price: selling price = cost ÷ (1 − profit rate).
A batch is a group of identical units costed together; cost per unit = batch cost ÷ units.
EBQ balances set-up cost against carrying cost; use the formula given in your study material.
Normal spoilage is part of the job cost; abnormal loss is charged to the costing profit and loss account.
The sale value of normal scrap is credited to the job if the scrap is identifiable with that job; otherwise it is credited to factory overheads (or the costing profit and loss account), as your study material specifies.
Show working notes for rates and adjustments, because they earn step marks.

Common mistakes

Treating job costing and batch costing as the same thing. Fix: In job costing the cost unit is the job. In batch costing the cost unit is the batch, and cost per unit is batch cost divided by units in the batch.
Saying job costing averages cost over many units like process costing. Fix: Job costing finds cost of each job separately. Process costing averages cost over a period's output.
Applying the overhead rate on the wrong base, such as direct materials instead of direct wages. Fix: Underline the base in the question (wages, labour hours, machine hours) and write it beside the rate.
Forgetting to deduct returned materials or to adjust transferred materials. Fix: Scan the question for words like returned, transferred, scrap and adjust the material line before moving on.
Taking profit on sales as a percentage of cost. Fix: If the question says 'on sales' or 'on selling price', divide cost by (100 − p) and multiply by 100.
Confusing margin with mark-up. Fix: Treat margin as a percentage of sales and mark-up as a percentage of cost unless the question says otherwise. State your assumption.
Using the monthly carrying cost or monthly demand with an annual figure. Fix: Convert D and C to the same year basis before using the formula.
Forgetting the 2 inside the square root, or dividing by 2 as in the average stock. Fix: Write EBQ = √(2DS ÷ C) as a fixed line. Use Q ÷ 2 only for average stock.
Charging abnormal spoilage to the job. Fix: Abnormal loss is always written off to the Costing P&L A/c. Only normal loss enters job or overhead cost.
Ignoring the sale value of spoiled units. Fix: Always charge the net loss: cost of spoiled units minus scrap value.

Exam tips

Theory questions often ask for features, advantages, limitations and suitable industries together. Prepare all four as short bullet lists.
For differences, give at least four points in a clear two-column style, such as cost unit, nature of output, cost collection and use of averages.
In MCQs, spot keywords: customer's specification means job, identical units together means batch, site and long duration means contract, continuous means process.
In numericals, show the cost sheet in order and state the profit basis. Profit on cost and profit on price give different answers.
Mention the job number and job cost sheet in every theory answer. These are the core terms examiners expect.
Write the job cost sheet in a vertical layout with subtotals for prime cost, factory cost and total cost. Step marks follow the layout.
Show the overhead rate calculation separately so you get marks even if a later figure is wrong.
For MCQs, check the base of absorption and whether profit is on cost or on selling price before choosing an option; wrong options are built from these slips.