1. JOB COSTING AND PROCESS COSTING WEEK 13

2. Production methods  Custom  Unique, single products  Batch  A quantity of the same goods produced at the same time ( a production run)  Continuous (or process)  Continuous production process of the same, indistinguishable goods Job costing Process costing

3. Transaction recording in manufacture  Material issues: record the quantity of material issued from raw materials to production.  Timesheets: record the number of hours worked by production labour to convert the raw material to finished goods.  Overheads: allocated  Conversion costs: labour + overhead

4. Job costing illustration Helo Pty Ltd manufactures components for helicopters. It does so in batches of 100 components. Each batch requires 500 kgs of rolled and formed steel, which takes 15 hours of labour. Transactions for the month:  Purchase of steel 1,000kgs @ $12/kg  Issue of steel to production 500 kgs  Direct labour to roll and form 500 kgs steel 15 hours @ $125/hour  Overhead allocated at completion of production of 100 components $2,000.  60 of the components manufactured in the batch were sold for $130 each.  At month end, 500 kgs of steel has been issued to production and 7 hours have been worked. The job is incomplete.  Calculate the value of work in progress at month end.

5. Work in progress will comprise Materials: Steel 500 kgs @ $12/kg = $6,000 Labour: 7 hours @ $125 875 Work in progress$6,875

6.  After completion of the job, calculate:  The unit cost of production  The gross profit  The value of inventory.

7. The job cost for the production of a batch of 100 components is as follows: Materials: Steel 500 kgs @ $12/kg$6,000 Labour: 15 hours @ $125 1,875 Overhead 2,000 Total job cost$9,875 Cost per component($9,875/100)$98.75 Cost of sales (60 @ $98.75) = $5,925 Sales income (60 @ $130) = $7,800 Gross profit is $7800 - $5925 = $1,875. Stock of finished goods (40 @ $98.75) = $3,950 Stock of raw materials is the cost of 500 kgs of steel @ $12/kg = $6,000 (purchased 1000kg less used 500kg)

8. Process costing illustration Voxic Ltd manufactures lubricants continuously. Transactions for the month:  Raw materials costing $140,000 were purchased  100,000 litres of lubricant were produced.  Materials issued to production cost $75,000  Conversion costs incurred were $55,000.  80,000 litres of lubricant were sold for $1.50/litre.  At the end of month, calculate:  The unit cost of production  The gross profit  The value of inventory.

9.  Cost of production (materials $75,000 + conversion $55,000) = $130,000  100,000 litres produced, cost per litre ($130,000/100,000 litres) = $1.30  Cost of sales for 80,000 litres sold (80,000 @ $1.30) = $104,000  Sales (80,000 @ $1.50) = $120,000  Gross profit ($120,000 - $104,000) = $16,000.  Finished goods inventory (20,000 litres unsold @ $1.30) = $26,000  Raw materials inventory ($140,000 purchased less $75,000 issued) = $65,000