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Job Order Costing
Job Order Costing
Job Order Costing
We are very thankful to our teacher Sir Faisal Majid for his great support and guidance in completing our report. We have selected Johnson & Johnson Pakistan for our project on the Cost Accounting methods used in the company and the following persons to whom we met and got information regarding the topic.
Table of Contents
The company is caring for the world, one person at a time... inspires and unites the people of Johnson & Johnson. We embrace research and science - bringing innovative ideas, products and services to advance the health and well-being of people. Employees of the Johnson & Johnson Family of Companies work with partners in health care to touch the lives of over a billion people every day, throughout the world. Our Family of Companies comprises: The worlds premier consumer health company The worlds largest and most diverse medical devices and diagnostics company The worlds fourth-largest biologics company And the worlds eighth-largest pharmaceuticals company
For making decision by using cost accounting information cost accountant usually follow some specific models. They use different decision model for different courses of action. Management accountants work with manager by analyzing and presenting relevant data to guide decisions. For example, if any organization wants to reduce its existing manufacturing costs it must identify the alternatives then it will analyze the alternatives by using only relevant data i.e., which can influence the decisions.
There are several factors that affect the decision making procedure of the managers. Some important factors are discussed here: a. Relevant costs and relevant revenues: Relevant costs are expected future costs and relevant revenues are expected future revenues that differ among the alternative courses of action being considered. Both relevant costs and relevant revenues must occur in future and they differ among the alternative courses of action. Focusing on the relevant data is especially helpful when all the information needed to prepare detailed income information is unavailable. Understanding which costs are relevant and which are irrelevant helps the decision maker concentrate on obtaining only the pertinent data and saves time. b. Qualitative and quantitative relevant information: Manager defines and weighs qualitative and quantitative information. Quantitative information are those which can be measured by the numerical number and qualitative information are those which cannot be measured by the number and off course manager will decide which one is measurable by the number and which one is not. Relevant cost analysis generally emphasis on quantitative factors but qualitative factors also have their own importance. c. One time only special orders: When factory has idle production capacity then manager must decide whether accepting or rejection special orders if special order has no long implications. Example: if any
company has capacity to produce 18000 units and currently producing 16000 units. The total cost (fixed-5 and variable-5) per unit is tk. 10. If they got an order to deliver 4000 units for tk.6 per unit they should accept it. But if they get the order of 5000 units they should not accept it because it crosses its relevant range. To make decision about special onetime order only relevant cost should be considered. A common term in decision making is incremental cost which means additional cost for producing every additional unit is also important in this regard. d. Insourcing Vs. Outsourcing and Make Vs. Buy decision: Outsourcing or Bye decision is purchasing goods and services from outside rather than producing in inside of the organization. Whether bye or make is sometimes influenced by qualitative factors. For example coca-cola company will never do outsourcing due to secrecy of the formula, know-how, and technology. In order to make decision if bye or make manager usually take into consideration about quality, dependability, material handling and set-up activity. And off course manager does cost benefit analysis based relevant cost information. e. Focusing on grand total: Manager will focus on grand total cost in making decision rather than unit cost. Sometimes unit cost could be misleading. If we want to make decision about make or buy, insourcing vs. outsourcing we need to consider total cost not unit cost. f. Using constrained resources: Under this condition, manager should select the product that yields the highest contribution margin per unit of the constraining or limiting resources.
Pharmaceutical
Wound Care
Hair Care
Nutritionals
Batch costing is that form of specific order costing which applies where similar articles are manufactured in batches either for sale or for use within the undertaking. Costs are collected according to batch order number and total costs are divided by total numbers in a batch to arrive at unit cost of each job. The method is applicable in aircraft, toy making, printing industries, etc. In Batch Costing, a lot of similar units which comprise the batch may be used as a cost unit for ascertainment of cost. Separate Cost Sheet is maintained for each batch by assigning a batch number. Cost per unit of product is determined by dividing the total cost of a batch by the number of units of that batch. johnson and johnson uses Batch costing system.
Features Batch Number Assignment You use this function to assign a batch with a number that uniquely identifies it.
Batch Specification You use this function to describe each batch uniquely using characteristics and characteristic values. You specify the permitted value range in the allocated material master record.
Batch Status Management You use this function to indicate whether a batch is usable or unusable. You set this status: Manually in the batch master record or at goods receipt Automatically in the usage decision in quality management
Job information
Job # Job description Date Started Date completed Number of units completed Job # cs-100 Baby Lotion Sept 02, 2008 Sept 30, 2008 1500
2500 25
2000 27
1500 28
Other Information
Date of Shipment Units Shipped Sales price per unit Marketing & Admin. Exp per unit Sept 30, 2008 1500 800 50
Material
Inventory Maintenance System:
PERPETUAL INVENTORY SYSTEM: under this system a complete and continuous record of movement of each inventory item is maintained.
The concept of Economic Order Quantity or EOQ has emerged out of this behaviour of carrying cost and ordering cost. EOQ is the quantity fixed at a point where total cost of ordering and the cost of carrying the inventory will be the minimum. EOQ may be arrived at by tabular method by preparing purchase order tables, showing the ordering cost, carrying cost and total cost of various sizes of purchase orders, or can be established by algebraic equation.
Labor Costing
Johnson & Johnson uses the Merricks Multiple Piece Rate System and labor paid bonuses considering their effectivity.
A wage incentive plan wherein increasingly higher unit pay rates are given to the worker as his productivity increases. Example Of Multiple piece rate system:
Merricks multiple piece rate system, calculate the earnings of worker X, Y & Z from the following particulars: Normal rate per hour $. 2.70, Standard time per unit 1/2 minute, Output per day is as follows: Worker X 195 units, Y 225 units, Z 300 units. Working hours per day are 8. Standard output per day of 8 hours = 30 units * 8 = 240 units Percentage Efficiency of individual worker = (Actual Output/Standard Output)*100 X = (195/240)*100 = 81.25% Y = (225/480)*100 = 93.75% Z = (300/480)*100 = 125% Piece rate applicable to individual worker: X = Normal rate up to 831/3% efficiency =$ 0.09
Y = 110% of Normal rate between 831/3% & 100% efficiency = $ 0.099 Z = 130% of Normal rate above 100% efficiency = $ 0.117 Earnings of X = 195 units * $ 0.09 = $.17.55 Y = 225units * $ 0.099 = $. 22.275 Z = 300 units * $ 0.117 = $. 35.10
Factory Overhead rate is predetermined by using labor hours. Company uses Step Method for allocating Service Department cost to production departments.
Cost of Each Dept. Cost Allocated By Time Cost Allocated By Store Cost Allocated By Maint.
Production Service A B Time Store Maintaince 16000 10000 4000 5000 3000 16000 1200 -4000 800 400 0 5800 2780 2320 -5800 696 0 4096 2457.6 1638.4
Standard Costing
Standard costs are used as target costs (or basis for comparison with the actual costs), and are developed from historical data analysis or from time and motion studies. They almost always vary from actual costs, because every situation has its share of unpredictable factors. Also called normal cost
Standard Material Information Purchased Quatity Standard Quantity Actual Quatity Used Actual Price Per Unit Standard Price Per Unit
Labor Information Actual Hours Worked Standard Hours Allowed Standard Rate Per Hour Actual Rate Per Hour
15000 16250 15 12
Variance Analysis Direct Material Price Variance Purchased Quantity Actual Price 50000 12 Purchased Quantity Standard Price 50000 13 Variance
Direct Material Quantity Variance Actual Quantity Used Standard Price 45000 13 Standard Quality Standard Price 42500 13 Variance Direct Labor rate Variance Actual Hours Worked Actual Rate 15000 12 Actual Hours Worked Standard Rate 15000 15 Variance Direct Labor Efficiency Variance Actual Hour Worked Standard rate 15000 15 Standard Hours AllowedStandard rate 16250 15 Variance