Question

Describe how legislation impacts on the role of an individual working in job costing.

Answer 1

Introduction to job costing

Job costing involves the accumulation of the costs of materials, labor, and overhead for a specific job. This approach is an excellent tool for tracing specific costs to individual jobs and examining them to see if the costs can be reduced in later jobs. An alternative use is to see if any excess costs incurred can be billed to a customer.

Job costing is used to accumulate costs at a small-unit level. For example, job costing is appropriate for deriving the cost of constructing a custom machine, designing a software program, constructing a building, or manufacturing a small batch of products.

Job costing involves the following accounting activities:

·         Materials. It accumulates the cost of components and then assigns these costs to a product or project once the components are used.

·         Labor. Employees charge their time to specific jobs, which are then assigned to the jobs based on the labor cost of the employees.

·         Overhead. It accumulates overhead costs in cost pools and then allocates these costs to jobs.

Job costing demands a considerable amount of costing precision if costs are to be reimbursed by customers (as is the case in a cost-plus contract, where the customer pays all costs incurred, plus a profit). In such cases, the cost accountant must carefully review the costs assigned to each job before releasing it to the billing staff, which creates a customer invoice. This can cause long hours for the cost accountant at the end of a job, since the company controller will want to issue an invoice as soon as possible.

Job Costing Allocation of Materials

In a job costing environment, materials to be used on a product or project first enter the facility and are stored in the warehouse, after which they are picked from stock and issued to a specific job. If spoilage or scrap is created, then normal amounts are charged to an overhead cost pool for later allocation, while abnormal amounts are charged directly to the cost of goods sold. Once work is completed on a job, the cost of the entire job is shifted from work-in-process inventory to finished goods inventory. Then, once the goods are sold, the cost of the asset is removed from the inventory account and shifted into the cost of goods sold, while the company also records a sale transaction.

Job Costing Allocation of Labour

In a job costing environment, labour may be charged directly to individual jobs if the labour is directly traceable to those jobs. All other manufacturing-related labour is recorded in an overhead cost pool and is then allocated to the various open jobs. The first type of labour is called direct labour, and the second type is known as indirect labour. When a job is completed, it is then shifted into a finished goods inventory account. Then, once the goods are sold, the cost of the asset is removed from the inventory account and shifted into the cost of goods sold, while the company also records a sale transaction.

Job Costing Allocation of Overhead

In a job costing environment, non-direct costs are accumulated into one or more overhead cost pools, from which you allocate costs to open jobs based upon some measure of cost usage. The key issues when applying overhead are to consistently charge the same types of costs to overhead in all reporting periods and to consistently apply these costs to jobs. Otherwise, it can be extremely difficult for the cost accountant to explain why overhead cost allocations vary from one month to the next.

Impact of legislation

Laws have a daily impact on our lives--whether they relate to social services, education, housing, nutrition, food safety, consumer rights or the environment. Public policies such as legislation, resolutions, appropriations, new regulations for a current law or court decisions are used as solutions to problems expressed by the public. These actions are the result of public issues that have been debated and compromised through the policymaking process. The basic element is the process used to solve a public problem. Change in legislation may result in increase or decrease of the cost which can affect cost of job. Legislation change also impact individual working in a job in different manner.