COSTING METHODS (Job, Batch and Process Costing)

Illustration 1 - Costing for job and batch costing

Jetprint Ltd specializes in printing advertising leaflets and is in the process of process of preparing
its price list. The most popular requirement is for a folded leaflet made from a single sheet of A4
paper. From past records and budgeted figures, the following date has been estimated for typical
batch of 10,000 leaflets:
Artwork GHS65
Machine set up 4 hours @ GHS22 per hour
Paper GHS12.50 per 1,000 sheets
Ink and consumables GHS40
Printer’s wages 4 hours at GHS8 per hour
Note: Printer’s wages vary with volume
General fixed overheads are GHS15,000 per period during which a total of 600 labour hours are
expected to be worked.

Required:
Calculate cost for 10.000 and 20,000 leaflets.

Illustration 2 – Job Costing

A business has a job costing system and prices jobs using total absorption costing. The cost
estimates for Job 264 are as follows:
Direct material 50kg @ GHS 4 per kg
Direct labour 30hours @ GHS 9 per hour
Variable production overhead GHS 6 per direct labour hour
Fixed production overheads are budgeted as GHS 80,000 and are absorbed on the basis of direct
labour hours. The total budgeted direct labour hours for the period are 20,000
Other overheads are recovered at a rate of GHS 40 per job.
Calculate the total job cost for 264
Illustration 3- A process account
The following details relate to process 2.
Material transferred from process 1 1,000 units at an average cost of GHS24 per unit
Labour cost GHS9,000
Overhead cost GHS3,000
Material transferred to process 3 1,000 units
Calculate the average cost per unit in process 2 and complete the process 2 account.

Illustration 4 – Normal losses

The following data relates to process 1.
Materials input 1,000 units costing GHS10,000
Labour cost GHS 8,000
Overheads GHS 6,000
Normal loss is 4% of input. Actual output = 960 units

Required:
Calculate the average cost unit process 1 and complete the process account.

Illustration 5 – normal losses and scrap value

The following data relates to process 1.
Materials input 1,000 unit costing GHS10,000
Lobour costs GHS8,000
Overheads GHS6,000
Normal loss 4% of input and is sold as scrap for GHS12 per unit.
Actual output = 960 units

Required:
Calculate the average cost per unit in process 1 and produce the process account and the scrap
account.
Illustration 6 – Abnormal losses with no scrap value
The following data relates to process 1.
Materials input 1,000 units costing GHS10,000
Labour costs GHS8,000
Overheads GHS6,000
Normal loss is 4% of input which cannot be sold.
Actual output = 944 units

Required:
Calculate the average cost per unit in process 1 and produce the process account and the abnormal
gains and losses account.

Illustration 7- Abnormal gains with no scrap value

The following data relates to process 1.
Materials input 1,000 units costing GHS10,000
Labour costs GHS8,000
Overheads GHS6,000
Normal loss is 4% of input which cannot be sold. Actual output = 980 units.
Required:
Calculate the average cost per unit in process 1 and produce the process account and the abnormal
gains and losses account.

Illustration 8 – Abnormal losses with scrap value

The following data relates to process 1.
Materials input 1,000 units per costing GHS10, 000
Labour costs GHS8,000
Overheads GHS6,000
Normal loss is 4% of input and is sold as scrap for GHS12 per unit.
Actual output = 944 units
Required:
Calculate the average cost per unit in process 1 and produce the process account, abnormal gains
and losses account and the scrap account.

Illustration 9 – Abnormal gains with scrap value

The following data relate to process 1.
Materials input 1,000 units costing GHS10,000
Labour costs GHS8,000
Overheads GHS6,000
Normal loss is 4% of input which can be sold for GHS12 per unit.
Actual output = 980 units

Required:
Calculate the average cost per unit in process account, abnormal gains and losses account and the
scrap account.

Test your understanding 1

W&B Ltd produce a breakfast cereal that involves several processes. At each stage in the process,
ingredients are added, until the final stage of production when the cereal is boxed up ready to be
sold.
In process 2, W&B Ltd have initiated a quality control inspection. This inspection takes place
BEFORE any new ingredients are added in to process 2. The inspection is expected to yield a
normal loss of 5% of the input from process 1. These losses are sold as animal fodder for GHS1
per kg.
The following information is for process 2 for the period just ended:
Units GHS
Transfer from process 1 500 kg 750
Material added in process 2 300 kg 300
Labour 200 hrs 800
Overheads - -
Actual output 755 -
Prepare the process account, abnormal loss and gain account, and scrap account for process 2 for
the period just ended.

Illustration 10 – CWIP and EUs

ABC Co has the following information for process 1.
Period costs GHS4,440
Input 800 units
Output 600 fully – worked units and 200 units only 70% complete
There were no process losses.
Produce the process account.

Illustration 11 –CWIP and EUs

For process 1 in LJK Ltd the following is relevant for the latest period:
Material costs 500 units @GHS8 per unit
Lobour GHS2,112
Overheads 150% of labour cost
Output: 400 fully – worked units, transferred to process 2. 100 units only 40% complete
with respect to conversion, but 100% complete with respect to materials.
There were no process losses.

Required:
Produce the process account

Test your understanding 2

A firm operates a process costing system. Details of the process 2 for period 1 are as follows.
During the period 8,250 units were received from the previous process at a value of GHS453,750,
labour and overheads were GHS350,060 and material introduced was GHS24,750.
At the end of the period the closing WIP was 1,600 units which were 100% complete in respect of
labour and overheads. The balance of units was transferred to finished goods.
There was no opening WIP or process losses. Calculate the cost per EU, the value of finished
goods and closing WIP.

Illustration 12- Weighted average cost of production

BR Ltd makes a product requiring several successive processes. Details of the first process for
August are as follows:
Opening WIP 400 units
Degree of completion:
Materials (valued at GHS19,880) 100%
Conversion (value at GHS3,799) 25%
Units transferred to process 2 1,700 units
Closing WIP
Degree of completion:
Materials 100%
Conversion 50%
Costs incurred in the period:
Material GHS100,000
Conversion GHS86,000
There were no process losses.

Required:
Prepare the process account for August using the weighted average method.

Test your understanding 3

A business makes one product that passes through a single process. The business uses the weighted
average cost. The details of the process for the last period are as follows:
Materials GHS98,000
Labour GHS60,000
Production overheads GHS39,000
Units added to the process 1,000
There were 200 units of opening WIPN which are valued as follows:
Materials GHS22,000
Labour GHS6,960
Production overheads GHS3,000
There were 300 units of closing WIP fully complete as to materials but only 60% complete for
overheads.
There were no process losses.
Calculate the following:
(a) The value of the completed output for the period.
(b) The value of the closing WIP.

Illustration 13 – FIFO cost of production

BR Ltd makes a product requiring several successive process. Details of the first process for
August are as follows:
Opening WIP: 400 units
Degree of completion:
Materials (valued at GHS19,880) 100%
Conversion (valued at GHS3,775) 25%
Units transferred to process 2 1,700 units
Closing WIP 300 units
Degree of completion:
Materials 100%
Conversion 50%
Costs incurred in the period:
Material GHS100,000
Conversion GHS85,995
There were no process losses.

Required:
Prepare the process account for August using the FIFO method.

Test your understanding 4

AXL Ltd operates process costing system. Details of Process 1 are as follows:
All materials used are added at the beginning of the process. Labour cost and production overhead
costs are incurred evenly as the product goes through the process. Production overheads are
absorbed at a rate of 100% of labour costs.
The following details are relevant to production in the period:
Unity materials labour and production Overheads
Opening Inventory 200 100% complete 75% complete
Closing Inventory 100 100% complete 50% complete

Opening inventory
Costs associated with these opening units are GHS1,800 for materials. In addition GHS4,000 had
been accumulated for labour and overhead costs.

Period costs
Costs incurred during the period were:
Materials GHS19,000
Labour costs GHS19,000
During the period, 2,000 units were passed to process 2. There were no losses.
The company uses a FIFO method for valuing process costs.

Required:
Calculating the total the value of the units transferred to process 2.
Illustration 14 – losses made part way through production.
BLT manufactures chemicals and a normal loss of 15% of material input. Information for February
is as follows:
Material input 200 kg costing GHS4.93 per kg
Labour and overheads GHS4,100
Transfers to finished goods 160 kg
Losses are identified when the process is 40% complete
There is no opening or closing WIP.

Required:
Prepare the process account for February.

Statement of EUs

Illustration 15 – Apportioning joint costs

Allison pic produces two products, X and Y, in a single join process. Last month the joint costs
were GHS75,000 when 10.000units of product X and 15,000 units of product Y were produced.
Additional processing costs were GHS15,000 for product X and GHS10,000 for Product Y.
Product X sells for GHS10, and product Y sells for GHS5.
The joint cost allocations to products X and Y using the net realisable value method would be:
Calculate the total net realizable value:
X: (10,000 unit *GHS10) -GHS15,000 = GHS85,000
Y: (15,000 units *GHS5) - GHS 10,000 = GHS 65, 000
Total net realizable value =GHS 150,000.

Illustration 16 – Treatment of joint costs

Process M produce two joint products (A and B) and one by-product (C). Joint costs are
apportioned on the basis of sales units.
The following information is relevant.
Sales Units Product A Product B Total
Apportioned joint cost 2,000 8,000 10,000
GHS3,600 GHS14,400
GHS18,000
It is possible to sell by-product C after further processing for GHS0.50 per unit. The further
processing costs are GHS0.20 per unit. 2,000 units of by-product C are produced.

Required:
If the by-product revenue is deducted from the main products cost how the joint costs of
GHS18,000 apportioned

Test your understanding 5

A company operates a manufacturing process which produces joint Products A and B, and by-
product C.
Manufacturing cost for a period total GHS272,926, incurred in the manufacture of:
Product A 16,000 kg (selling price GHS6.10 per kg)
Product B 53,200 kg (selling price GHS7.50 per kg)
Product C 2, 770 kg (selling price GHS1.20 per kg)
Product B requires further processing after separation from the other two products. This costs a
total of GHS201,930.
Products C also requires further processing to make it saleable, and this costs GHS0.40 per kg.

Required:
Calculate the total profit earned by products A and B in the period, using the net realizable values
(net income) to apportion joint costs. Assume that the by-product costs are deducted from the
manufacturing costs.

Test your understanding 6

A company produces two products along with a single by-product. The joint process costs total
GHS200.000. Product A can be sold for GHS450,000 after additional processing of GHS250,000;
product B can be sold for GHS600,000 after additional processing of GHS200,000. The by-product
BP can be sold for GHS25,000 after packaging costs of GHS5,000. The by-product is accounted
for using the by-product revenue deducted from the main product cost approach.
Required:
What would be the joint cost allocation using the net realisable value method.
A B
A GHS60,000 GHS120,000
B GHS66,667 GHS133,333
C GHS77,143 GHS102,857
D GHS85,714 GHS114,286

Test your understanding 6

Stone Mayson Inc is a manufacture of granite slabs. Mayson digs blocks of granite out of its
quarry. All the granite extracted goes through the processes of quarrying and cutting. Two joint
products (monuments and granite slabs) are produced along with a by-product called grit.
Monuments are cut, polished, and engraved in a variety of standard shapes, sizes, and patterns
before being sold. The granite slabs are special-ordered by contractors for kitchen workshops.
These slabs are cut and polished to exacting specifications. The small pieces of granite resulting
from the cutting process are crushed and sold to farm-suppliers as poultry grit.
Stone Mayson has the following costs and output information:
Process Cost Tonnes of output
Quarry GHS350,000
Cutting GHS250,000
Monuments GHS300,000 30,000
Granite slabs GHS400,000 60,000
Grit GHS10,000 5,000

A local farm-supplier purchases all of the grit that is produces at GHS40 per tonne. Assume that
stone Mayson uses the physical units method to allocate joint costs.
Required:
(1) What would be the cost per tonne of monuments and granite slabs, assuming that the grit
is accounted for as “Other Income”
(2) What would be the cost per tonne of monuments and granite slabs, assuming that the grit
is accounted for as by-product revenue deducted from the main product cost