Question

Explain the businesses allocates its costs when preparing job costing. University standard.

Answer 1

ANs:

Job Costing: Job costing is basically a costing method through which costs are segregated and ascertained in order to do the costing of the specific product treated as individual job. In Job order costing each specific product is unique in its way and are treated as a separate task/ job altogether.

I would rather say that by ascertaining or tracking the expenses, it actually helps the companies to focus the costs in detail and also helps in eliminate the unnecessary costs.

In job costing costs are basically segregated into Direct material, Direct Labor costs and overheads.

The first is allocation of direct material costs: Under Job costing method, any materials which are actually used in the production will be held in storage after they are basically allocate to particular jobs. In this material usage if there is any normal spoilage it will be treated in overhead and if it abnormal it will be borne by the job and will be charged to COGS. Here important thing to note is that once the specific job is completed the entire cost belongs to direct material will be transferred from work in process to finished goods, and when this finished goods is sold then the entire cost will be charges as cost of goods sold.

The second is allocation of Direct labor, any labor which required to produce the specific jobs are direct labor, while on other side a manufacturing related labor cost which is actually cannot be traced back to that specific job should be part of overhead not the direct labor, direct labor will be only these labor which can be directly traced to the job . Here also when the job is finished or produced the work in process labor is transferred to finished job and once once sold will be part of cost of goods sold.

The third one is overhead, any cost which are not to be traced back to the job are pooled here as overhead, allocation of overhead is a bit difficult task since it is moistly allocated based on certain assumption.

So these were the ways business allocated their cost in Job costing system.