JOB COSTING and JOB-ORDER COSTING

Meaning and difference

Job Costing or Job-Order Costing: Method of allocating costs to products that are readily identified by individual units or batches, each of which requires varying degrees of attention and skill. Process Costing: The method of allocating costs to products by averaging costs over large numbers of nearly identical products.

Hybrid costing system

An accounting system that is a blend of ideas from both job costing and process costing. Job costing and process costing are extremes along a continuum (continuous whole) of potential costing systems. Hence, some companies use hybrid costing systems.

Job Order Costing

Examples: Garages, automobile repair workshops, Printing jobs, photography jobs, Hospitals, Foundries, machine shops, Contractors and sub-contractors, Furniture making business.

Job-costing in Service orgn.

Examples: Research project in a college or university, maintenance job in a workshop, audit engagement by Chartered Accountants firm, Architects services for a civil contractor, design engineers. Service and non-profit organizations do not usually call their product a job order, but may be program or class of service.

Job-costing in Non-profit orgn.

A program is an identifiable group of activities that frequently produces outputs in the form of service rather than goods. e.g. safety program, education & training program, counseling program, polio eradication program, etc. Though costs & revenues can be traced to programs, depts often work simultaneously on many programs, at various stages of completion. Hence, job order costing is a challenge.

Job-costing in service & non-profit organizations

The challenge is to apply various departments costs to many programs, which are in various stages of progress and completion. Only then, can managers best allocate limited resources among competing or complementary programs.

Budgets and control of engagements

Budgeted direct labor cost is the hourly labor cost multiplied by budgeted (billing) hours. Accounting or auditing firms, law firms, etc. use their direct labor cost or direct labor hours as the cost driver for overhead application. Budgeted Overhead Rate = Budgeted Overheads / Budgeted Direct Labor

Accuracy of costs of engagements

Where service providers use either budgeted or actual costs of engagements as guides to pricing and to allocating effort among particular services or customers, accuracy of projected or actual costs of various engagements may affect pricing and eventually, operational decisions. Expenses reimbursed by client are not added to costs for mark-up or for billing purposes.

Job Costing
Job is work done as per an order from a customer for the supply of specific product or service to suit his needs. Job costing is applicable to single item, and may be for a batch. It is also applicable for manufacturing and service industries and also to non-profit organizations.

Job Costing
Each job is considered as a cost center and material cost, labor cost and direct expenses are accounted to the job on actual basis. Factory Overheads or Mfg Overheads are charged on estimated % age basis and so also administration overheads. Profit % is added at the end or built in administrative overheads by increasing the % to be charged.

Service Costing
This is applied to service organizations or service departments in mfg organizations. Costs are classified into standing charges (these refer to fixed costs) and running costs (these refer to variable costs).

Job Order Costing - Merits

1. Job costing data can be used for estimating costs of specific jobs /batches. 2. Estimates of future job costs serve as a basis for competitive bidding & submitting quotations. 3. Can be used as standard for measuring efficiency of performance. 4. System is easy to operate and easy on clients. 5. Job cost sheets can be used for grouping jobs by type or other criteria.

Job Costing Merits & Demerits

Merits: 5. Job cost sheets can be used for grouping job by type or other criteria by management for prioritization or for any other purpose. Demerits: System requires detailed record keeping for each job and may be expensive to operate. Jobs attract Service Tax of 10% plus Higher Education Cess of 3% of Service Tax.

Assignment & Conclusion

Assignment: Obtain any job work quotation & study how quotation is prepared / submitted & bill prepared after actual completion of job. Conclusion: PPT is not a substitute to Text Book.

Classroom and train

Classrooms are like a train: First two rows are executive coaches reserved for VIPs. The middle two are general compartments The last 4 rows are sleeper coaches.