The cost of each order produced

The cost of each order produced for a customer or he cost of each lot to be placed in stock is recorded on a job order cost sheet. Each cost sheet is designed to collect the direct and indirect cost charged to a specific job, and each has a job number which is entered on all documents relating to the job e. g. materials issued, labor hours worked, overhead items charged etc. the indirect factory cost (overheads) charged to a job are usually estimates rather than the actual costs incurred. Estimated overheads charged = OAR ?

Activity level for a job. Batch costing This is another form of specific order costing which is very similar to job costing. Within each batch are identical units but each batch will be different and with a separately identifiable cost unit which is given a batch number just as a job number in job costing. Costs are then identified against each batch number to ensure that they are charged to the correct batch. The individual cost of each unit in a batch is determined thus; Cost per unit in batch = Total production cost of batch (W. N. Funnel, 1996)

Number of units in batch This costing method is widely applicable in engineering component industry, footwear and clothing manufacturing industries. The individual selling prices of the batch is arrived at by adding a profit element to the cost of the batch. Process costing This is costing method applicable production is of mass type, and the products involved are many and identical e. g. production of bottled beer. Average cost per unit is calculated for each process; Average cost per unit = costs of production Expected/normal output

In this type of costing, the output of on process forms part of the input of the next process, and the opening Wok in Progress (WIP) is the closing WIP of the previous period. Uniform costing This method of costing is not described as a costing system as such because it’s based on compromise. In this method, an organization adopts an agreed method of costing for all their products. i. Issues to be considered when setting selling prices Before a firm sets up selling prices for its products, it considers quite a number of issues. Market competition is one of cost of interdependence.

It is usually an important factor to lay basis on given that many firms are normally in competitive industries as opposed to the monopolistic ones. Pricing model which is ruling in the market can also determine some overhead costs to an extent. For example, advertising costs may be high or low depending on prevailing selling prices. When in a oil business for example, advertising costs will be lower when the price fixed by a firm is similar to those of the other players in the market. This is because similar prices will always attract any customers just like those one of the competitor, hence advertising might not be that necessary.

The other factor which ought to be considered too is the return on capital employed. It is highly applicable in specific costing system where the job undertaken might call for additional equipment or raw materials over and above what the firm has invested in for normal productions. Under such circumstances, the firm can peg some targets to do with the required rate of return, or return on capital. It can use either return on investment, or residual income method of appraisal. Such a condition will call for a proper consideration of the selling price to be chosen.