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A brief overview of job costing

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  1. Introduction
  2. Job costing in general
    1. Applicability of job costing
    2. Features of job costing
    3. Components of job costing
  3. Other important aspects of job costing
  4. Job costing evaluated
    1. Advantage
    2. Disadvantage
  5. Conclusion

Job costing is one of the methods of counting costs & is used when job orders are undertaken in a factory or a workshop or contracts are taken out to build houses, construct roads, bridges etc. Many companies manufacture goods against orders. They are what is known as ?jobbing type? industries and generally include printers, machine tools manufacturer's job foundries and general engineering workshops. The main purpose of job costing is to ascertain profit or loss on each job undertaken. Since costs are estimated before accepting a job and actual costs are compared with estimated costs, it is also possible to ascertain whether the estimate was correct and/or cost incurred was reasonable. This helps in improving efficiency in operation as well as in revising estimates for future quotation if necessary

[...] of jobs in hand at the end of the period Each job is a separate accounting unit and separate job or production numbers are allotted to each job A separate production card is maintained for recording the costs incurred on each job or each lot of production Under this method, the cost incurred in respect of materials, labor, overheads etc. for each job or lot of production is ascertained separately The purpose of job order costing is to segregate the cost of each product or lot or job A job or an order may extend over several accounting periods and therefore, the costs may not be related to any particular accounting period Job work is done in the factory premises. [...]

[...] The procedure of costing involves the following steps: Production Order: On receipt of an order from customer or on receipt of communication from the sales department for manufacturing a certain product, the production planning department prepares a suitable design of the product or job as per the specifications. The production planning department prepares a list of operations which indicates the sequence of operations and the machines or departments to whom the job is entrusted. The department also prepares an estimate of materials required for the product. [...]

[...] Direct costs can be directly associated with a job and can be identified as a part of the finished product. For a mason, direct costs would include the costs of bricks and mortar, as well as the cost of the labor to prepare the mortar and lay the bricks. Direct costs are distinguished from indirect costs, or overhead. Indirect costs are costs that cannot be identified in the finished product, even though they were incurred, indirectly, in the process of completing the job. [...]

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