Cost Accounting

Calculating Job Order Costing

 

 
What is Job Order Costing?

Job order costing is assigning costs to determine the costs of the production of a good. Job order costs are usually assigned to an individual product or a batch.

 

How to Calculate a Job Order Costing

Below is an example question. Make sure you show full working as shown on this page to achieve full marks.

 

The Question

Big Foods Ltd is a frozen food manufacturer who wants to know the cost of producing one batch of 200 frozen bangers and mash meals.

 

The following costs apply to the production of a single batch:

  • 100kg of Potatoes at $2.50 kg

  • 20kg of Sausages at $4 kg

  • 20 factory worker labour hours are needed at $15 an hour

  • 5 supervisor labour hours are needed at $20 an hour

  • 2kg of gravy is needed at $10 kg

  • Plastic containers are estimated to cost 5 cents each

 

Find the cost to produce one batch, showing the cost of all direct materials, direct labour and factory overheads.

 

Step 1: Categorise the Expenses

You can categorise each of the expenses by writing a small note such as 'DM' for Direct Material or highlight each cost to their respected category. You can show your categorising of each expense in the next steps. 

  • 100kg of Potatoes at $2.50 kg - Direct Material

  • 20kg of Sausages at $4 kg - Direct Material

  • 20 factory worker labour hours are needed at $15 an hour - Direct Labour

  • 5 supervisor labour hours are needed at $20 an hour - Factory Overhead

  • 2kg of gravy is needed at $10 kg - Factory Overhead

  • Plastic containers are estimated to cost 5 cents each - Factory Overhead

 

Step 2: Calculate Direct Material Costs

For step 2, list and calculate the direct material costs. Make sure you mention the expense below a direct material header to show your understanding of relationship costs and manufacturing costs.​ Also, make sure you add all direct material expenses together.

Step 3: Calculate Direct Labour

Make sure you mention direct labour workings and list the direct labour expense to show your understanding of relationship costs and manufacturing costs. Make sure you add all direct labour expenses together.

Step 4: Calculate Factory Overhead

List and calculate all the indirect materials and indirect labour under the factory overhead heading to show your understanding of relationship costs and manufacturing costs. Make sure you add all factory overhead expenses together.

Step 5: Add all Costs Together

This question example asks specifically for 'showing the cost of all direct materials, direct labour and factory overheads'. Hence, we should list all the category expenses and add them together and list the total cost of producing one batch.

Test Your Knowledge!

Practice Job Order Costing Questions

 

Click on the icon link below to download a copy of practice job costing questions for you to try yourself.

Job Order Costings Practice Questions

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