Everything you need to know about Job Costing

26.09.2019

What do you understand by Job Costing and why is it important?

Job costing is a must in today’s business environment. It is a simple method of recording the costs of a manufacturing job, rather than a process. With a system, a project manager or accountant can keep track of the cost of each job, maintaining data which is often more relevant to the operations of the business.

Still not clear about Job Costing?

Okay, let me be more precise;

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
• Labour
• Overhead

For example, printing 5000 pamphlets, assembling 500 vehicles, delivering 4000 products and so on.

The elements within job costing procedure consist of direct costs, employment costs and material cost 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.

Job costing is used in which industries?

Due to the forward-thinking of every leading business leaders, it has been used in most of the industries like manufacturing, engineering, Aggregate and concrete industries. Whether its a large, medium or small entity job costing is a must in every industries/ business to maintain accuracy.

What’s the objective of Job Costing?

• To maintain the development of each job, by providing a different account for each and every process of the job, so as to estimate the costs taken, when transitioning from one process to another.
• Helps the management in estimating the price of a certain work based on the price of the previous jobs.
• To identify profitable and non-profitable jobs and help and prevent loss oriented jobs taking place.
• To differentiate departments from one another on the basis of the cost taken and the number of materials required.
• Provide detailed information of what is happening in each department to the customer and move forward with the plan with respect to the idea of the customer. Any sudden changes in the plan can be accommodated, if congruent with the final cost estimation.
• It should be flexible and scalable enough to accommodate any kinds of industrial or commercial jobs available for cost estimation.

Let me take you through some advantages of Job costing!

Hold on Peeps! There’s a big list of advantages to taking you through:

• It acts as a form of analysis detailing all the type of costs that are present throughout the manufacturing process. This includes direct costs, labour costs, and overhead charges.
• It acts as a gauge determining the profitability of the job and helps for 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.
• 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.
• The efficiency of the manufacturers can also be taken into observation while taking account of their job costing and their associated expenses.
• Ruination and defective work can be found out through job costings and it can be immediately corrected through certain individuals responsible for the job.
• Budgetary control comes into action when taken into consideration of the various overhead charges which are predetermined for each department.
• 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.
• It evaluates the quality of the work through various statistical techniques.
• It will provide an easy calculation of cost overheads for specific needs, and in a precise manner.
• And enables the supervisors to keep track of various components such as money, materials and the performance of employees

There were too many advantages right? Now it’s your duty to think about why job costing is a must in your firm. Also, if you don’t have job costing in your business, you should now have one!

Herbst Software is known for providing the best solutions to various industries. Having more than 30 years of experience in the ERP market we are also known to create solutions as and when the company encounters a new problem. Our job costing has been used by many known companies and has made their accounting and management process simple.

We believe in making business simple and creating solutions for all your problems! 🙂