Job costing is the process of tracking the expenses incurred on a job against the revenue produced by that job. Job costing is an important tool for those who are pairing a relatively high dollar volume per customer with a relatively low number of customers. For example, building contractors, subcontractors, architects and consultants often use job costing, whereas a hardware store or convenience store would not use job costing. Job costing using accounting software enables you to track a number of factors and analyze the results to aid decision making. A Job costing report helps you ensure that all costs involved in a job have been properly invoiced to the customer. An Estimates vs. Actual report compares quoted costs to actual costs, and quoted revenues to actual revenues so that you can analyze any variances between your quote and the actual result. You can then use the results of your analysis to create more accurate quotes when you bid on future jobs. Using job costing will allow you to identify the most and least profitable areas of your business, so that you can focus on the profitable elements, and try to make the less profitable aspects of your business more efficient. It will help you to quote new jobs more accurately, and assist you in managing jobs in progress. Examples
AI FAJER Propriety building construction industry
An example of an industry where job order costing is used is the AI FAJER Propriety building construction industry, because each building is unique. Thus, the job order costing can be divided by three parts, material labor and overhead respectively. Many kinds of raw materials will be used in building construction. The manufacturers and workers of custom equipment or custom cabinetry are also examples of companies that will keep track of production costs by item or job. The job cost records also serve as the subsidiary ledger or documentation for the cost of the work-in-process inventory, the finished goods inventory, and the cost of goods sold. Manufacturing Companies
Manufacturing companies incorporate job order costing as a means of controlling usage of raw materials, production equipment and labor hours. These businesses consider each customer order a separate job for the purposes of job order costing. Alternatively, manufacturers may group smaller value projects together under a single job heading. How manufacturers group jobs depends on the size of the company. For example, a small business manufacturer called O.Y.L. Manufacturing Company Sdn. Bhd. (OYLM) consider a job valued over $1,000 as a single job, but they may group smaller customer orders together in blocks of $1,000 for costing purposes.
Process costing is a form of operations costing which is used where standardized homogeneous goods are produced. This costing method is used in industries like chemicals, textiles, steel, rubber, sugar, shoes, petrol etc. Process costing is also used in the assembly type of industries also. It is assumed in process costing that the average cost presents the cost per unit. Cost of production during a particular period is divided by the number of units produced during that period to arrive at the cost per unit.
CIMA London defines process costing as “that form of operation costing which applies where standardize goods are produced”
5 Steps for Process Costing
1. Analyze inventory flow
2. Convert in-process inventory to equivalent units
3. Compute all applicable costs
4. Calculate the cost per unit of finished and in-process inventory 5. Allocate costs to units of finished and in-process inventory
First, analyze the cost-flow model of the relevant inventory account to determine how much inventory was there at the beginning of the period, how much was started during the period, how much as completed during the period, and how much is left as work-in-process at the end of the period.
Second, convert the...
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