Question

what are the advantages and disadvantages of job order costing? Why should a company use this technique?

Answer 1

Job order costing records the materials and labor expenses for jobs, and allocates the overhead to particular job at a pre-determined rate.

Advantages

• Main advantage of job costing it allows the manager to calculate the profit earned on the individual job.
• It allows manager to keep watch on the performance of the team and individual in terms of productivity, effectiveness etc.
• Spoilage and defectives arising out of each job can be easily traced and hence, control can be placed on wastages.

Disadvantages

• In this system the record of material and labour is required to be maintained by the employee for each job. It is difficult task to capture all data for each single job.
• Job costing is a expensive system.
• It is more of the clerical job as it requires maintaining the detailed record of the job

Job costing is suited for business which are highly engaged in the custom works such as consultant or construction contract. It is also good for assessing the performance of the individual team or department with in the company.