Job costing is one of the methods of counting costs & is used when job orders are undertaken in a factory or a workshop or contracts are taken out to build houses, construct roads, bridges etc. Many companies manufacture goods against orders. They are what is known as "jobbing type" industries and generally include printers, machine tools manufacturer's job foundries and general engineering workshops. The main purpose of job costing is to ascertain profit or loss on each job undertaken. Since costs are estimated before accepting a job and actual costs are compared with estimated costs, it is also possible to ascertain whether the estimate was correct and/or cost incurred was reasonable. This helps in improving efficiency in operation as well as in revising estimates for future quotation if necessary
[...] of jobs in hand at the end of the period Each job is a separate accounting unit and separate job or production numbers are allotted to each job A separate production card is maintained for recording the costs incurred on each job or each lot of production Under this method, the cost incurred in respect of materials, labor, overheads etc. for each job or lot of production is ascertained separately The purpose of job order costing is to segregate the cost of each product or lot or job A job or an order may extend over several accounting periods and therefore, the costs may not be related to any particular accounting period Job work is done in the factory premises. [...]
[...] The procedure of costing involves the following steps: Production Order: On receipt of an order from customer or on receipt of communication from the sales department for manufacturing a certain product, the production planning department prepares a suitable design of the product or job as per the specifications. The production planning department prepares a list of operations which indicates the sequence of operations and the machines or departments to whom the job is entrusted. The department also prepares an estimate of materials required for the product. [...]
[...] Completion of Job: On completion of the job, a job completion report is send by the shop to production planning Department and the copy of the same to cost Department. The completion report indicates that the jobs are completed and the cost sheet may be closed. The various elements of cost are totaled and the total cost is divided by the number of jobs executed or units manufactured to determine the cost per job or unit. Subsequently, the quantity recorded in the finished stock card is totaled and total number of units completed is posted to the job completion report or production order. [...]
[...] On receipt of the job order, the cost department prepares a Job Cost Sheet or Card which bears the production order number. For each job, a separate job cost sheet is prepared in order to ascertain costs and the profit or loss on each job. The procedure involved in job costing can be summarized as follows: 1. For any job cost involved is estimated and on the basis of this estimate, price is quoted to the customers. If the job is accepted, a production order is made out by planning department. [...]
[...] Components of Job Costing There are numerous aspects to job costing, and one may use many, some or none of them. If one wants to use job costing Track the costs involved in the job 13. Make sure all of the costs are invoiced to the customer 14. Produce reports showing details of costs and revenues by job. The fundamental components of job costing are: Quotes also known as estimates, bids, or proposals Fixed fee jobs Time and materials jobs Revenues Items Direct costs Standard costs Quotes Quotes are non-posting transactions. [...]
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