Job & Batch Costing Flashcards
CHAPTER 9
Job
Cost unit that consists of a single order or contract
Procedure for job costing / performance of jobs
1) Customer specifies requirement
2) Customer and supplier agree on precise requirements (quantity & quality), specifications and timeframe of delivery.
3) Supplier estimates pricing
(provide quotation)
4) Pricing agreed
5) Job will be loaded to the factory floor
How do we treat set-up cost in batch costing ?
As direct expense
–> Set-up costs can be high
–> Each batch may require different production inputs and settings
The more different batches are from each other, the more significant the set-up costs and downtime
YES/NO
YES
Ways to reduce set-up costs
1) Keeping subsequent batches as similar as possible to the initial batch
2) Regular maintenance of production machinery, reducing downtime
3) Increasing batch size (without compromising quality) produces more units per set-up
4) Examining the set-up requirements and designing the process to reduce set-up costs and downtime
Simultaneity
[SHIP]
Service provider cannot be separated from the service
Also known as ‘inseparability’
Heterogeneity
[SHIP]
Each instance of the service is unique
Also known as ‘inconsistency’ or ‘variability’
Intangibility
[SHIP]
Services are not tangible
Perishability
[SHIP]
Services cannot be stored for future use
Service costing characteristics : Involvement
Customer is involved in the service delivery
Service costing characteristics :
No transfer of ownership
The service is not owned, and cannot be sold to a third party
Challenges in costing services
1) Difficult to identify a cost unit
2) Indirect costs are often a more significant percentage of a service’s cost
3) Number of inputs for each cost unit may be unique.
3 service cost unit
a) Simple –> haircut/customer
b) Composite –> hotel room-night
c) Complex –> Service is unique, personalised, and complex, with many cost elements (etc: Cost to argue legal cost in court)
Why did not-for-profit organisations calculate cost per unit ?
- To demonstrate their efficiency
- To help measure performance and improvements over time
- To help control costs
Can unit cost be used to compare quality of a service ?
NO
Unit costs ignore quality.
