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A job is an individual product designed and produced as a single order for an individual customer.

Well-known examples include small building and building repair work, car maintenance and repair work, printing, painting and decorating.

All of the actual costs incurred in a job are eventually recorded on a job cost card.

Job costing:

  • Direct materials
  • Direct labour
  • Direct expenses
  • Production overhead: most common method of allocating overheads to specific cost units was on the basis of either the labour hours worked or machine hours worked on that particular cost unit. So production overhead will be absorbed into jobs on the basis of the pre-determined overhead absorption rate.
  • Other NON production overheads: in order to arrive at the total cost for a particular job any administration, selling and distribution overheads must also be included in the job’s cost.


A batch is a group of identical but separately identifiable products that are all made together.

A batch is for example a group of 100 identical products made in a particular production run. For example, a baker may produce loaves of bread in batches.

Batch costing: each batch is very similar to a job and in exactly the same way as in job costing the costs of that batch are gathered together on some sort of a batch cost card. The layout of the batch cost card will be similar to that of a job cost card. This will show the total cost of that particular batch of production.

Cost of a cost unit:  cost of each product or cost unit = total cost of batch/ number of products in that batch.


Process costing is the costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Process costing is used when a company is mass producing the same item and the item goes through a number of different stages.

Process costing is sometimes referred to as continuous operation costing.

Examples include the chemical, cement, oil, paint and textile industries.

Two key issue that the complicate process costing are losses and incomplete units at the end of the period.



Here is an example of a two process manufacturing operation.

HYRA has a manufacturing operation that involves two processes. The data for the first process during a particular period is as follows:

  • At the beginning of the period, 2,500 kg materials are introduced to the process at a cost of $3,500.
  • These materials are then worked upon, using $600 of labour and incurring/absorbing $450 of overheads.

The resulting output is passed to the second process.


In many industrial processes, some input is lost (through evaporation, wastage, etc) or damaged during the production process. This will give rise to losses in the process.

We will look at the concepts of normal losses and abnormal losses or gains.

Normal losses represents items that you expect to lose during a process, and its cost is therefore treated as part of the cost of good production. Abnormal losses or gains are not expected so are valued at the same cost as good production.

In exam questions you are not expected to have to split losses into normal and abnormal.

Normal losses usually stated as a percentage of input i.e. the normal loss is expected to be 5% of the input materials. Unless the normal loss can be sold as scrap the cost of the loss is absorbed into the production cost.


At the start of a heading process 1,000 Kg of material costing $16 per kg is input. During the process, conversion costs of $2,000 are incurred. Normal loss ( through evaporation) is expected to be 10% of input. During March 1,000 Kg were input and output was 900 Kg.

Compute the unit and total cost of output in March.

Cost per unit of output:

= Net costs of input/expected good output = $18,000/(1,000-10)=$20 per kg

Total cost of output = 900 Kg x $20=$18,000.


Process costing is also used when products may not be completed at the end of a time period (e.g. manufacturing cars). This means that the process costs are shared between finished or complete units and work in progress or partially completed units.

We need to decide how the costs should be split over these different categories of production.

To be able to assign the correct amount of cost to finished and partially completed units of product we use a concept called Equivalent Units or EU. To demonstrate this concept:

If we had 1,000 units that are 50% complete at the end of a period. How many finished units is this equivalent to?

1,000 x 50% = 500 equivalent units (EU)

In other words, we assume we could have made 500 units and finished them instead of half finishing 1,000 units.

The calculation of equivalent units:

Equivalent units = Number of physical units x percentage completion


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