JOB COSTING – meaning, features, advantages and disadvantages

Job costing involves the accumulation of costs of materials, labour and overhead for specific job. this approach is an excellent tool for tracing specific costs to individual jobs and examining them to see if the cost can be reduced in the later jobs. jobs might include one off customer undertaking, manufacturing new products or delivering multiple product that will be developed in the same time

example of job costing: job costing is applied in – printing press, furniture, hardware, ship building, heavy machinery, interior decoration, repair and other similar works.

situations where job costing is used

job costing is used in the following situations

  • when jobs are executed for the different customers according to their specifications
  • when no to orders are alike in all respect and each order or job need special treatment
  • when work in progress (WIP) differs from period to period on the basis of the number of jobs in hand at the different stages of completion

features of job costing

  • it is specific order costing
  • a job is carried out or a product is produced to meet the specific requirement of the order
  • job costing enables a business to ascertain the cost of the job on the basis of which quotation for the job may be given
  • while computing the cost, direct costs are charged to the job directly as they are traceable to the job
  • indirect costs such as overhead are charged to the job on some suitable basis
  • each job completed may be different from other jobs and hence it is difficult to have standardazation of controls and therefore more detailed supervision and control are necessary
  • at the end of the accounting period, work in progress may or may not exist

The following are limitations of job costing

  • it is said that it is too time consuming and require detailed record keeping. this makes the method more expensive
  • record keeping for different jobs may prove complicated
  • inefficiencies of the the organization may be charged to the job, though it may not be responsible for the same.
  • this method of estimating price may be not suitable for jobs or project that are efficient and fast paced
  • with the increase of clerical processes chances of errors increase
  • the cost as ascertained , even if they are compiled very promptly, are historical as they are compiled after incidence
  • if the major economic changes takes place , the comparison of the cost of the job for one period with that of another becomes meaningless. distortion of cost also occurs when the batch quantities are different
  • it require some guess work: especially at the beginning there is some guesswork involved in job costing. for example, if you are building a particular size or style of house for the first time, you might not have an accurate idea of labour cost involved. you might underestimate those cost and miss out on profit, or you may turn down the job because you over estimated lobour and material costs and determine the gain is not substantial enough.

difference between job costing and batch costing

  • job refers to any specific assignment, contract or work order wherein work is executed as per customers specific requirement while batch refers to collection or lot of similar units under a job
  • in job costing cost is ascertained for the job which may consist of one job or service while in batch costing cost is ascertained for the batch as whole and then expressed by dividing total cost by batch quantity

inspite of the above limitations, it can be said that job costing is extremely useful method for computation of of the cost of the job

the limitation of time consuming can be mitigated by computerization and this can also reduce the complexity of the record keeping

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