Helps in identifying unprofitable jobs Helps in providing a precise quotation for a product Documents used in job costing Manufacturing or production order : This document authorizes the manufacturing or production department to produce a specified quantity of a product which constitutes the job. Cost sheet: In job costing, a cost sheet is often used to record costs incurred in stages of production.
The cost sheet and job order work may also be combined, when costs are recorded on the production order document. Other documents: The other documents such as material requisition slips, tools and spares order, time tickets, inspection order etc. Job costing procedure and cost allocation for different activities Activity Procedure Allocation Materials Stage 1: Procuring and storing in the warehouse Stage 2: Picking up from the store and issued to a specific job.
Spoilage or scrap - Charged to overhead cost pool for allocation at a later stage Abnormal loss if any - Charged directly to the cost of goods sold. Direct labour - Charged directly to individual jobs when it is directly traceable. Indirect labour - Charged to an overhead cost pool and then assigned to various open jobs. Overhead Here, the overhead cost is accumulated in the cost pools and then costs are allocated to jobs. The variances are directly charged to cost of goods sold.
Job costing example The following information was recorded in the books of ABC manufactures for the period ended Cost Completed Job W.
The completed job materialized for Rs. Yarab A Jul During manufacturing: Maintaining job cost sheets. After manufacturing: Revising the cost sheets.
The first step is to identify the job and its requirements. This is done by analyzing the factors and outcomes which will be affected by taking up this job.
This is a very essential step because it helps you decide on an estimate for the job that you will be undertaking. For example, when manufacturing paper, you need to know how many sheets of paper the customer needs, the number of trees that need to be cut down, the span of time required to produce this paper, the personnel who need to be assigned to this job, the capacity of your machines, and the electricity they consume.
The next step is to identify the costs associated with doing this job. This cost should be broken down into direct and indirect costs. For example, while manufacturing paper, your wood pulp, water, glue, bleaching agents, and directly involved factory personnel are direct material and labor costs.
The security personnel deployed at the manufacturing unit, and the oil and coolants required to ensure the smooth functioning of the machines, are indirect material and labor costs. Adding all of these together will give you an idea of the total cost that will you incur while performing this activity for your client. The incurred indirect costs should be allocated to the job based on previous examples. In other words, the cost for this job is assigned based on the costs incurred in the past while doing a similar job.
These costs include the cost of manufacturing equipment, the electricity used to run the equipment, utility bills, and depreciation of machines. If the customer is satisfied with the quote they can place the order and the production can begin.
During the manufacturing process, each job is assigned a unique production number and will be identified by this number until the job is completed. While the job is being performed, you need to maintain a job cost sheet to track the actual material and labor being used.
This sheet will help you evaluate if the actual cost of doing the job differs from your estimate. If they differ a lot, it means that either your estimation process or your manufacturing process can be improved. This can be due to incorrect estimation or inefficient implementation of the job.
Since every cost incurred in this job can be tracked, it is easy to find out where the mistake or excessive consumption has occurred so that it can be rectified. Once the job is completed, you need to revise the actual cost by adding the additional costs which might be incurred while doing the job with respect to the estimate given to the customer.
This helps to remove over or under applied costs and revise them in accordance with the completed job. This step will help identify the true cost of completing the job and arriving at its final cost. Job order costing helps you calculate the entire cost of the job in a step by step. This method enables you to find out errors, decide if the job is profitable, finding areas for process improvement, monitoring fixed asset usage and creating more accurate quotes for future jobs.
It is a highly efficient costing method for a manufacturer who produces a multitude of products different from one another. This site uses Akismet to reduce spam. In job costing, the cost is maintained for each job or product by calculating all expenses, including materials, labor, and overheads.
Such a costing is described as job or terminal or specific costing. The jobs or work orders are generally executed in factories, workshops, and repair shops. However, jobs are sometimes completed outside the factory or workshop e.
Finally, in job costing, production processes and requirements are determined first. In turn, expenses are ascertained in relation to these. For example, job costing is ideal for activities such as printing press, painting and decorating, vehicle garages, repair shops, electrical fittings, shipbuilding, engineering works, and plumbing works.
When an order for a job is received and accepted by the manufacturer, the order, as well as the job, is given a specific number. This number is used to identify the order and job. After accepting an order, the production planning department prepares a document known as a production order. The production order contains the following details:. The production order takes the form of instructions issued to a foreman to proceed with the job. Thus, it serves as an authority to the foreman to indicate that the work should be started.
A specimen of a production order is shown below. A bill of materials BOM is a list of all materials and parts required for a specific job.
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