Topic: Job Costing

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  • 20 Marks

IMAC – MAR 2024 – L1 – Q3 – Job Costing

Explain decision-making levels within an organization, sources of management accounting information, and factors for an effective job costing system.

a) Management accounting is the provision of financial and non-financial decision-making information to managers.

Required:
i) Explain the decision-making levels within an organization and state an example each of the kind of decision taken at the various levels. (9 marks)
ii) Explain TWO (2) sources of management accounting information and state an example each of the information to be obtained. (6 marks)

b) One form of specific order costing methods that seeks to attribute costs to jobs is known as job costing.

Required:
Enumerate THREE (3) factors that are necessary to ensure an effective and workable job costing system. (5 marks)

a)
i) Decision-Making Levels within an Organization:

  1. Strategic Level:
    • Description: This level involves long-term decision-making that impacts the overall direction of the organization. Decisions are made by top management, including the board of directors and senior executives.
    • Example: A decision to enter a new market or to discontinue a product line is made at this level.
  2. Tactical Level:
    • Description: This level involves medium-term decisions that translate the strategies set at the strategic level into actionable plans. Middle management is typically responsible for these decisions.
    • Example: A decision regarding the allocation of resources among different departments or projects to achieve the organization’s strategic goals is made at this level.
  3. Operational Level:
    • Description: This level involves short-term decisions focused on the day-to-day operations of the organization. Operational decisions ensure that the organization runs efficiently on a daily basis.
    • Example: A decision to reorder inventory or to schedule shifts for production workers is made at this level.

(3 points @ 3 marks each = 9 marks)

ii) Sources of Management Accounting Information:

  1. Internal Sources:
    • Description: Information obtained from within the organization, including accounting records, production schedules, and human resource records.
    • Example: Accounting records provide detailed information on costs, revenues, and profitability, which are used to monitor financial performance and make operational decisions.
  2. External Sources:
    • Description: Information obtained from outside the organization, such as market research, industry reports, government publications, and competitor analysis.
    • Example: Industry reports can provide benchmarking data that helps the organization assess its performance relative to competitors.

(2 points @ 3 marks each = 6 marks)

b) Factors Necessary for an Effective and Workable Job Costing System:

  1. Accurate Cost Allocation: A robust system must accurately allocate direct and indirect costs to specific jobs. This requires well-defined cost centers and an effective method for apportioning overheads.
  2. Detailed Documentation: Comprehensive documentation of all job-related costs, including materials, labor, and overheads, is essential to ensure accurate cost tracking and reporting.
  3. Timely and Accurate Data Entry: The system must ensure that all job-related data is entered promptly and accurately to provide real-time information for decision-making and cost control.

(3 points @ 1.67 marks each = 5 marks)

  • 20 Marks

IMAC – NOV 2019 – L1 – Q1 – Job Costing

Calculate overhead absorption rates and estimate the costs and invoice price for a job.

You have just been appointed the full-time Management Accountant for Genuine Jobbers Limited, a company based in the North Industrial Area in Accra that produces cartons to meet customers’ specific requirements. You have been tasked to determine the cost and invoice price per job for the forthcoming period and have been provided with the following:

Budgeted statement of profit or loss for the financial year ended 31 March, 2020:

The sales department is currently negotiating a price for an enquiry for job number 45A/2020 and the following information has been provided for that purpose:

Direct costs estimates:

GH¢
Direct material 18,000
Direct labour: Grinding department 400 hours @ GH¢10 each 4,000
Finishing department 300 hours @ GH¢12 each 3,600

Note:

  • It is recommended that production overheads are charged to jobs on the basis of direct labour hours worked.
  • Selling and administrative expenses are charged at 10% of production cost.
  • It is a policy of the company to make a profit margin as budgeted on each job.

Required:
a) Compute the overheads absorption rates for each of the production departments. (4 marks)
b) As the Management Accountant, estimate the costs of Job 45A/2020 in the light of the information provided, and hence an invoice price for the Sales Manager’s use. (16 marks)

b) JOB 45A/2020
JOB COST SHEET

GH¢ GH¢
Direct materials 18,000
Direct labour:
Grinding (400 x GH¢10) 4,000
Finishing (300 x GH¢12) 3,600 7,600
Prime costs
Production overheads:
Grinding (400 x GH¢35) 14,000
Finishing (300 x GH¢40) 12,000 26,000
Production costs 51,600
Selling & Administration overheads (10%x GH¢51,600) 5,160
Total costs 56,760
Profit mark-up (20/80 x GH¢56,760) 14,190
Selling price of Job 70,950

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