DEPARTMENT OF COMMERCE AND FINANCIAL MANAGEMENT

FACULTY OF COMMERCE AND MANAGEMENT STUDIES

UNIVERSITY OF KELANIYA
ACADEMIC YEAR 2022/2023

Job Costing
Seven-step Approach to Job Costing

1) A manufacturing company is planning to sell a batch of 25 special machines (Job 650) to a retailer
for Rs. 114,800. Following information is related to Job 650.
Direct Material – Rs. 50,000
Direct Labor – Rs. 19,000
Manufacturing Overhead Costs – Rs.65,100
The overhead allocation base is machine hours and Job 650 used 500 machine hours. 2480
machine hours were used by all jobs.
By using seven-step Approach to Job Costing, calculate the cost of Job 650.

2) Ashen Ltd has two departments called “Assembly” and “Finishing”. Overhead is absorbed based on
machine hours in Assembly department and on direct labour cost in finishing department. The
company estimated the following for year 2019.
Assembly Finishing
Production Overhead Rs.10,000,000 Rs.8,000,000
Machine Hours 200,000 33,000
Direct Labour Hours 30,000 160,000
Direct Labour cost Rs.900,000 Rs.4,000,000

During the month of March, the cost record for job order No.301 shows the following.
Assembly Finishing
Direct Material Rs.14,000 Rs.3,000
Direct Labour Rs.600 Rs.1,250
Direct Labour Hours 30 50
Machine Hours 130 10

The Actual costs and machine hours were as follows for 2019.
Assembly Finishing
Production overhead Rs.10,200,000 Rs.7,900,000
Direct Labour Cost Rs.950,000 Rs.3,900,000
Machine Hours 220,000 32,000

I. What is the estimated overhead rate that should be used in the assembly department? In the
finishing department?
II. What is the total overhead allocated to Job 301?
III. Assuming that Job 301 manufactured 200 units of product, what is the cost of Job 301?
What is the cost per unit?
IV. What the total amount of over or under applied overhead in each department at the year
2019?
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 DEPARTMENT OF COMMERCE AND FINANCIAL MANAGEMENT
FACULTY OF COMMERCE AND MANAGEMENT STUDIES
UNIVERSITY OF KELANIYA
ACADEMIC YEAR 2022/2023

Job order Cost Sheet

3) At the beginning of June, Galway Company had two jobs in process, Job 78 and Job 79, with the
following accumulated cost information:
Job 78 (Rs) Job 79 (Rs)
Direct materials 1,000 800
Direct labor 600 1,000
overhead 750 1,250
Balance, June 1 2,350 3,050
During June, two more jobs (80 and 81) were started. The following direct materials and direct labor costs
were added to the four jobs during the month of June
Job 78 (Rs.) Job 79(Rs.) Job 80(Rs) Job 81(Rs)
Direct materials 500 1,110 900 100
Direct labor 400 1,400 2,000 320
At the end of June, Jobs 78, 79, and 80 were completed. Only Job 79 was sold. On June 1, the balance in
Finished Goods was zero.
Required:
1. Calculate the overhead rate based on direct labor cost.
2. Prepare a brief job-order cost sheet for the four jobs. Show the balance as of June 1 as well as
direct materials and direct labor added in June. Apply overhead to the four jobs for the month of June, and
show the ending balances.
3. Calculate the ending balances of Work in Process and Finished Goods as of June 30.
4. Calculate Cost of Goods Sold for June.

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 DEPARTMENT OF COMMERCE AND FINANCIAL MANAGEMENT
FACULTY OF COMMERCE AND MANAGEMENT STUDIES
UNIVERSITY OF KELANIYA
ACADEMIC YEAR 2022/2023

Batch Costing

Batch Costing Procedure

1) Leo Limited undertakes to supply units of a component per month for the months of January,
February and March 2020. Every month a batch order is opened against which materials and labour cost are
booked at actual. Overheads are levied at a rate per labour hour. The selling price is contracted at Rs. 15/-
per unit.

From the following data, present the statement of cost and cost per unit, Total profit & profit per unit of
each batch order.

Month Batch Output Material Labour

(Numbers) Cost Cost
Rs Rs.
January 2020 1,250 6,250 2,500
February 2020 1,500 7,500 3,000
March 2020 1,000 5,000 2,000

Labour is paid at the rate of Rs. 2 per hour. The other details are:

Month Overheads Total Labour Hours

January 2020 12,000 4,000
February 2020 9,000 3,000
March 2020 15,000 5,000

2) Component SW-10X is made entirely in machine shop No. ASW II. material cost is Rs.20 per
component. Each component takes 6 minutes to produce and the machine operator is paid Rs.15 per
hour. Machine hour rate is Rs.72 per hour. The setting up of the machine to produce the equipment takes
3 hours for the operator.
You are required to prepare cost sheets showing the setting up costs and the production costs, both in total
(for the batch) and per component, assuming a batch size of,
I. 100 components
II. 150 components
III. 200 components

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 DEPARTMENT OF COMMERCE AND FINANCIAL MANAGEMENT
FACULTY OF COMMERCE AND MANAGEMENT STUDIES
UNIVERSITY OF KELANIYA
ACADEMIC YEAR 2022/2023

Economic Batch Quantity

3) Compute the economic batch quantity for a company using batch costing with the following
information.

Annual Demand for the component 24,000

Set-up cost per batch Rs. 120
Carrying Cost per Unit of Production Rs. 0.36
I. What would be the optimum ran size for bearing manufacture?
II. What would be the interval between two consecutive optimum runs?
III. Find out the minimum inventory cost.

4) A Contractor has to supply 500,000 AW-20Y components per year. The cost of holding a
component for one year is Rs.2. Setting up the machine to produce the component takes 30 minutes
for the operator. Machine operator is paid Rs.60 per hour. Contractor should use special oil which is
the cost of Rs.10 per bottle to operate the machine. Machine needs two bottles per one batch.
I. Calculate Economic Batch Quantity (EBQ)
II. How often should contractor produce each batch?

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