1. UNIT 9: MANAGEMENT ACCOUNTING: COSTING AND BUDGETING
LECTURER: JUDITH ROBB-WALTERS

2. UNIT 9: MANAGEMENT ACCOUNTING: COSTING AND BUDGETING
LEARNING OBJECTIVE1: BE ABLE TO ANALYSE COST INFORMATION WITHIN A BUSINESS

3. THE BASIC SYLLABUS
1. Be able to analyse cost information within a business.
2.Be able to propose methods to reduce costs and enhance value within a business.
3. Be able to prepare forecasts and budgets for a business.
4. Be able to monitor performance against budgets within a business.

4. LEARINGING OUTCOMES
Be able to analyse cost information within a business
At the end of the class the students should be able to:
1.2 Use different costing methods

5. OVERVIEW
Costing methods are those which help a firm to compute the cost of production or services offered by it.

6. Job costing
Job costing is the process of assigning costs to custom products or services. Direct materials
and direct labor are traced to individual jobs, and production overhead is allocated.
Manufacturers that use job costing include aircraft builders, custom motorcycle and automobile
manufacturers, and custom designed jewelers, among others. Job costing is also frequently used in service industry organizations such as hospitals, accounting firms, and repair shops.

7. Batch costing
Batch costing is a form of specific order costing. It is very similar to job costing.
Within each batch are a number of identical units but each batch will be different.
Each batch is a separately identifiable cost unit which is given a batch number in the same way that each job is given a job number.
Costs can then be identified against each batch number. For example materials requisitions will be coded to a batch number to ensure that the cost of materials used is charged to the correct batch.

8. Batch costing
When the batch is completed the unit cost of individual items in the batch is found by dividing the total batch cost by the number of items in the batch.
Batch costing is very common in the engineering component industry, footwear and clothing manufacturing industries.
The selling prices of batches are calculated in the same ways as the selling prices of jobs, i.e. by adding a profit to the cost of the batch.

9. process costing
Process costing is a method of costing used mainly in manufacturing where units are continuously mass-produced through one or more processes. Examples of this include the manufacture of erasers, chemicals or processed food. In process costing it is the process that is costed (unlike job costing where each job is costed separately).

10. process costing
The method used is to take the total cost of the process and average it over the units of production.
Cost per unit = Cost of inputs
Expected output in units

11. contract costing
Contract costing is a specific order costing system that’s applied to high-value jobs that will not be completed in a single accounting period – civil engineering projects, for example. An account is kept for each contract, and applicable direct costs and overheads – eg, labour, materials, plant hire, depreciation of machinery, share of head- office expenses etc – are, with appropriate year-end adjustments, charged to each account.

12. service costing
This is the application of costing principles to the costing of service operations as opposed to the manufacture of goods. For example, hotel, transport and airline businesses, schools, etc. It may also, however, be applied to a service cost centre in a manufacturing concern. It may be decided to treat the haulage department of a manufacturing and trading concern as a service cost centre after determining whether it is worthwhile to run the delivery of goods to customer internally or to sub-contract it to a haulage company.

13. service costing
To take such a decision, information is required on how much it costs to run it in-house. The principles of cost ascertainment remain the same in that all expenses incurred in the process of rendering the service are appropriately classified and aggregated and then averaged over the
total number of units of that service to obtain cost per unit.
The manner in which costs are classified would vary from one industry to the other. The following formats for a transport and canteen
businesses are illustrated.

14. service costing
The major problem with service costing is the determination of the cost unit to use in measuring the output of the service. For example, for a transport business, service could be measured in terms of kilometers travelled or the weight of goods carried, or a combination of both.

15. service costing
Other cost-units in the service industry are as follows:
Service Cost unit
Hotel Occupied room-day
Restaurant meal served
College Full time equivalent student Electricity Kilowatt-hour
Hospital Patient-day
Transport Miles travelled, Tonne-mile

16. REVIEW QUESTIONS
1.Which costing methods is most likely to be used by a company involved in the manufacture of liquid soap? 2. A company calculates the prices of jobs by adding overheads to the prime cost and adding 30% to total costs as mark up. Job number 1025 was sold for $1,690,and incurred overheads of $694. What was the prime cost of the job?

17. REVIEW QUESTIONS
3. Company Blue is preparing a job costing estimate that ill be used to provide a quote for a potential customer. Estimated costs for the job is to be based on the following:-
Direct Materials- $2,893
Direct Labour hours at a rate of $8 per hour
Bonus – 210 hours at $1.20 per hour

18. REVIEW QUESTIONS
3. Production overheads – Absorbed at 20% of prime cost (including labour bonus) +$9 per direct labour hour
Non-production overheads – Absorbed at 25% of total production cost
Quoted prices are calculate to provide Company Blue with a net profit of 20% of sales.

19. REVIEW QUESTIONS Required:
(a) Calculate the total estimated PRODUCTION cost of the job.
(b) Calculate the price that should be quoted for the job.

20. BIBLIOGRAPHY
'Financial Accounting, Cost Accounting And Management Accounting'. Cost and Management Accounting 2012: 12.
'Job Costing'. 1st ed. Wiley:Home, 2015.
Kfknowledgebank.kaplan.co.uk,. N.p., Web. 3 Sept
Freer, Heather. 'Process Costing'. acca. N.p., Web. 7 Sept
r04.pdf (Further Reading)
Steven, Grahame. 'Fundamentals Of Management Accounting'. cimaglobal.com/. N.p., Web. 7 Sept
Kumar, Vinod. 'Service Costing'. Svtuition.org. N.p., Web. 7 Sept
'COSTING AND QUANTITATIVE TECHNIQUES'. PROFESSIONAL EXAMINATION INTERMEDIATE Web. 7 Sept