What is Job order costing?
What is Job order costing?Advantages and disadvantages of Job order costing
What is Job order costing?Advantages and disadvantages of Job order costing
Concept of job order costing
The act of producing goods and providing services according to the special demand or order of the customers is called a job. Now, it becomes necessary to ascertain the total costs of the job. Hence, the process of ascertaining the costs of job is called job order costing.
This technique can be used by repair workshop, tap and electricity connections, research center, Construction Company, advertising agency, auditing firm and other non-manufacturing organizations etc. under this method costs are accumulated for each job or work order separately. The jobs are usually carried out inside nether factory building and compete in short span of time. They can easily be distinguished from each other.
Character institute of management accountants (CIMA), London defines job order costing as "that form of specific order costing which is applied where is undertaken to customer's specific factory or workshop and moves through processes and operations as a continuously identifiable unit. The term may also be applied to work such as property repairs and the method may be used in costing of internal capital expenditure jobs."
From the above definition, it is clear that job order costing is a method of calculating the cost of a job that is carried against the specific demand of customer where the production process moves as a continuous identified unit.
Feature of job order costing
Following are the specific features of job order costing:
• Goods and services are produced according to the customers' orders. In other words, the goods are not produced for stocking in the warehouse.
• Each job bears some specific characteristics and needs special materials and labour.
• Each job is treated as a specific cost center.
• The cost of each job is calculated after the works is completed.
• It takes comparatively lesser time to complete a job.
• The supervisor of the materials and labour is easy
Objective of job order costing
The main objective/advantages of job order costing are presented below:
• To calculate the cost of each job by maintaining a separate account for each job order or order. It enables the calculation profit or loss from each job or order.
• It helps the management in estimating or quoting the price for an order or a job. Such estimations are made on the basis of the past cost records related to similar work.
• To help identify the profitable and non profitable job or order.
• To differentiate the cost of every job or order and production from one department to other.
• To compare actual costs and estimated cost for purpose of controlling the operational inefficiency.
Feature of job order costing
Following are the specific features of job order costing:
• Goods and services are produced according to the customers' orders. In other words, the goods are not produced for stocking in the warehouse.
• Each job bears some specific characteristics and needs special materials and labour.
• Each job is treated as a specific cost center.
• The cost of each job is calculated after the works is completed.
• It takes comparatively lesser time to complete a job.
• The supervisor of the materials and labour is easy
Objective of job order costing
The main objective/advantages of job order costing are presented below:
• To calculate the cost of each job by maintaining a separate account for each job order or order. It enables the calculation profit or loss from each job or order.
• It helps the management in estimating or quoting the price for an order or a job. Such estimations are made on the basis of the past cost records related to similar work.
• To help identify the profitable and non profitable job or order.
• To differentiate the cost of every job or order and production from one department to other.
• To compare actual costs and estimated cost for purpose of controlling the operational inefficiency.
Advantages and disadvantages or job order costing
The advantages of job order costing are as following:
a. It provides a detailed analysis of cost of materials, wages and overheads classified by functions, departments and nature of expenses which enable the management to determine the operating efficiency of the different factors of production, production centers and the functions units.
b. It helps to ascertain the cost of production.
c. It enables the management to identify and unprofitable job or orders.
d. It helps the management in formulating of plants and policies related to production and distributions.
e. It helps the management in estimating or quoting the price for an order of a similar job. Such estimations are made on the basis of the past cost records.
f. It also helps in controlling the material and labour costs.
g. It also provides information about the various aspects of cost.
The disadvantages of job order costing are mentioned below:
a. It is based on hectically cost. The cost of job or order is ascertained after the work is complete hence; there is no possibility of adjusting the unnecessary materials, labour or process.
b. It is expensive since separate record has to be maintained for separate job or order.
c. It is difficult to calculate the exact cost of job if there is no effective system of spearing the cost into direct and indirect.
d. This method may not suitable for the jobs that include high cost and time.
a. Inquiry from customer: since the works under job order costing, are carried after the order from the customer has been received, the detail information about the job like the price, quality, durations for supply and other terms and conditions should be accumulated form t customers.
b. After estimation: after taking the detailed information about the job, the cost of completing the job is estimated. The cost estimation is made on to basis of part information and the current price level change. The pried to be quoted for a job is ascertained by adding a certain profit on the cost.
c. Receiving order: the customer places an order, if he/she is satisfied with the price, quality and other terms and conditions. The work is started after receiving the order.
d. Production order: after receiving the order, the planning department sends an order to the production department to produce the stated goods or services. The production department does not inanities the production in the absence of such order. A production order includes the details about the goods. The specimen of a production order is given below:
Procedures of job order costing
The following procedures are involved in a job order costing:a. Inquiry from customer: since the works under job order costing, are carried after the order from the customer has been received, the detail information about the job like the price, quality, durations for supply and other terms and conditions should be accumulated form t customers.
b. After estimation: after taking the detailed information about the job, the cost of completing the job is estimated. The cost estimation is made on to basis of part information and the current price level change. The pried to be quoted for a job is ascertained by adding a certain profit on the cost.
c. Receiving order: the customer places an order, if he/she is satisfied with the price, quality and other terms and conditions. The work is started after receiving the order.
d. Production order: after receiving the order, the planning department sends an order to the production department to produce the stated goods or services. The production department does not inanities the production in the absence of such order. A production order includes the details about the goods. The specimen of a production order is given below:
e. Cost ascertainment: a job cost sheet is prepared to calculate the cost of goods or services to be produced according to the production order. Its specimen is as under.
Calculation of profit or losses: it is estimated by comparing the actual cost with the prices obtained.
f. Completion of job: after completing the job, the production department sends the information of the same to the cost accounting department. The cost accounting department compare the predetermined cost and actual cost to find the variance if any. It also determines the profit or loss by comparing the actual price of the job and the the total costs involves in it. For this, s statement is prepared which is called a cost sheet. The specimen of a cost sheet is given below:
1. What is job order costing?
He act of producing a proving to the special demand or order of the customers is called a job. Now, it becomes necessary to ascertain the total costs of the job. Hence, the process of ascertaining the costs of job is called job order costing.
This technique can be used by repair workshop tap and electricity connection, research center, Construction Company, advertising agency, auditing firm and other non-manufacturing organizations etc. under this method costs are accumulated for each job or work separately. The jobs are usually carried out inside the factory building and complete in short span of time. They can easily be distinguished from each other.
2. Mention the feature of Job Order Costing.
Following are the specific features of job order costing:
• Goods and services are produced according to the customer's order. In other words, the goods are not produced for stocking in the warehouse.
• Each job bears some specific characteristics and needs special material and labour.
• Each job is treated as a specific cost center.
• The cost of each job is calculated after the work is completed.
• It takes comparatively lesser time to complete a job.
• The supervisor of the material and labour is easy.
Calculation of profit or losses: it is estimated by comparing the actual cost with the prices obtained.
f. Completion of job: after completing the job, the production department sends the information of the same to the cost accounting department. The cost accounting department compare the predetermined cost and actual cost to find the variance if any. It also determines the profit or loss by comparing the actual price of the job and the the total costs involves in it. For this, s statement is prepared which is called a cost sheet. The specimen of a cost sheet is given below:
1. What is job order costing?
He act of producing a proving to the special demand or order of the customers is called a job. Now, it becomes necessary to ascertain the total costs of the job. Hence, the process of ascertaining the costs of job is called job order costing.
This technique can be used by repair workshop tap and electricity connection, research center, Construction Company, advertising agency, auditing firm and other non-manufacturing organizations etc. under this method costs are accumulated for each job or work separately. The jobs are usually carried out inside the factory building and complete in short span of time. They can easily be distinguished from each other.
2. Mention the feature of Job Order Costing.
Following are the specific features of job order costing:
• Goods and services are produced according to the customer's order. In other words, the goods are not produced for stocking in the warehouse.
• Each job bears some specific characteristics and needs special material and labour.
• Each job is treated as a specific cost center.
• The cost of each job is calculated after the work is completed.
• It takes comparatively lesser time to complete a job.
• The supervisor of the material and labour is easy.
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