Features of Job Order Costing

1.
DEFINITION OF JOB COSTING

The term Job Costing may be defines as "in job costing, costs are collected and accumulated according to jobs, contracts, products or work orders. Each job is treated as a separat~ entity for the purpose of costing. The material and labour costs are complied through the respective abstracts and overheads are charged on predetennined basis to arrive at the total cost."
Features of Job Order Costing Some of the important features of this method of costing are given below:
(1) Works or production are undertaken against the order of customers. (2) Production is not as a continuous process because each job is accepted by work order basis not for stock or future sales. (3) Each job is treated as a separate entity for the purpose of costing. (4) There is no unifonnity in the flow of production because of different production process. (5) Costs are collected and accumulated after the completion of each job or products in order to find out profit or loss on each job. (6) The jobs differ from each other requiring separate work in progress maintained for each job.
Objectives of Job Order Costing
The following are the important objectives of Job Costing:

(1) Job costing provides accurate cost information for each job or product.
(2) It enables management to reduce the cost by making comparison of each elements of actual costs with estimated ones. (3) It helps management to measure the operational efficiency and inefficiency for each job or works to take effective decision making. (4) This method enables management to providing proper valuation of work in progress.
Advantages of Job Order Costing

The following are the various advantages of Job order costing:
(1) It helps management to identifying profitable and unprofitable jobs.
(2) It provides required information for preparation of estimates while submitting quotations for similar jobs. (3) It facilitates effective cost control by evaluating operational efficiency of each job or works. (4) It helps management to fix selling price of each order or each job. (5) Spoilage and defective works can be easily identified with each job or person. (6) It facilitates the application cost-plus formula of pricing of large contracts. (7) It facilitates the introduction of budgetary control of overheads, since the overheads are charged on predetermined basis to arrive at the total costs.
Disadvantages
(1) This method is relatively involve more labour intensive. Thus, it is expensive.
(2) With increase in clerical work, there are chances for committing more errors and mistakes. (3) Job Costing is essentially historical costing. It does not provide for the control of cost unless it is combined with estimated or standard costing system. (4) It is difficult to make cost comparison among different jobs because each job has its own features.
Pre-requisites for Job Costing

In order to ensure the successful application of Job Costing method, it is essential to consider the following pre-requisites : (1) A sound production planning and controlling system. (2) An appropriate time booking and time keeping system to avoid idle time. (3) Maintenance of necessary records with regard to job tickets, work order, operation tickets, bills of materials and tools requirements etc. (4) Appropriate methods of overhead apportionment and absorption rate. (5) Effective designing and scheduling of production.
Job Costing Procedure The procedure of job costing may be adopted for costing purposes is briefly given below :
(1) Customer's Enquiry: Production or job order is executed on the basis of enquiries received from the customers.
The routine enquiries may be related to expected estimated costs to be incurred, quality to be maintained and duration for production planning etc.
(2) Quotation for the Job: As per the customer's enquiry and specifications of work or job, a responsible person is preparing the estimates or quotation and price is fixed for a specific job. And the same conveyed to the customer appropriately.
(3) Customer's Order: If the quotation is satisfactory to the customer, he may place an order.
(4) Production Order: As soon as an order is received, the Production Planning and Controlling Department will make out a production order. It is in the form of instructions issued to the foremen to execute the order and to control its physical progress. It contains all the information regarding the production. Accordingly production control department assign a production order number for each order or job.
(5) Cost Accumulation: The Cost Accountant is responsible to prepare a Job Cost Card on the basis of production order. It is also termed as "Job Cost Sheet." For each job the costs are collected and recorded under separate production order number. The sources of collection of costs are : (a) Direct material can be identified or obtained either from Bill of Materials or Requisition Slips or Invoices in the case of direct purchases. (b) Wages paid to direct labour is associated with a job and can be identified or recorded with the help of Time Sheet, Job Cards and Wage Analysis Sheet. (c) Direct expenses are identified on the basis of direct expenses vouchers. (d) Overheads are apportioned on some predetermined basis. It can be accumulated with the use of standing order numbers or cost account numbers.
(6) Completion of Jobs: After completion of a job, the final report is sent to the costing department with regard to charging of material, labour, and overheads are recorded on the job cost sheet. The actual cost recorded under each element of cost is ascertained to find out the total cost. Any deviations from the estimated costs are also noted to take the corrective actions.
(7) Profit or Loss on Job: It is determined by comparing

Features of Job Order Costing

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1.

DEFINITION OF JOB COSTING

Objectives of Job Order Costing

The following are the important objectives of Job Costing:

Advantages of Job Order Costing

Pre-requisites for Job Costing

(7) Profit or Loss on Job: It is determined by comparing

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