Question

What is involved in job costing? (Hints: You may need to consider, but not be limited to: (a) the definition of job costing, (b) the purposes of job costing, (c) the basic documents used in the job costing system, (d) the major functions of job costing system, and (e) the fundamental components of job costing.)

Answer 1

Answer is as under :

Meaning of Job Costing

Job costing is a method or technique of costing where the amount of work done is calculated job wise. In simple term, here direct and indirect cost working is done for each job perform or completed. The data of production, sales, material required etc is done as per the customer specification order.

For example:

Costing of order given by customer for 10000 marriage inviation card.

The elements within job costing procedure consist of direct costs, labour costs and material costs which comprises of prime costs and also overhead charges used for the departmental costs and shipping and handling costs which also includes costs taken for stocking and storage.

Purpose of Job costing :

1) Useful for calculation of profit or loss in execution of each job and hence useful to keep track of cash inflow and outflow,

2) Useful to management for accurate and correct calculation of current and future cost for each job to be perform,

3) Standard cost set can be compared with the actual cost and hence performance measurement is easy and cost control and improvement can be done,

4) Work in progress can be known

C. The basis documents used in the job costing system :

Production order: Production order or cost order is a type of work order, authorising and sanctioning the manufacturers to produce, the order given to the customer.

Cost sheet: The cost sheet and the works order both can be combined at the last stage while establishing the final production value.

d. The major functions of Job costing system :

1. Job costing acts as a form of analysis detailing all the type of costs that are present throughout the manufacturing process. This includes the direct costs, the labour costs, and the overhead charges.
2. It acts as a gauge determining the profitability of the job and helps for the future customers or companies to decide whether to take up the job or not. It also gives us an idea about the feasibility of the job.
3. Job costing prevents duplication of work because it helps in the estimation of a similar job. This helps in a company quoting the price of a job, it can always depend on the pricing of a previous job as a reference.
4. The efficiency of the manufacturers can also be taken into observation while taking account of their job costing and their associated expenses.
5. Ruination and defective work can be found out through job costings and it can be immediately corrected through certain individuals responsible for the job.
6. Budgetary control comes into action when taken consideration of the various overhead charges which are predetermined for each department.
7. Job costing information is used more for job contacts where the price of the job depends on the amount of the work done, rather than depending on the final fixed price.
8. It evaluates the quality of the work through various statistical techniques.
9. Job costing provides an easy calculation of cost overheads for specific needs, and in a precise manner.
10. Job costing enables the supervisors to keep track of various components such as money, materials and the performance of the employees.