MEANING AND APPLICATIONS OF JOB COSTING
Job Costing
There are certain manufacturers who produces goods and services as per the order and the specifications given by their customers. These industries are know as jobbing type industries and the costing method followed by them is called Job Costing.
Job costing is designed to accumulate cost data for a manufacturing firm which produces goods to specific order. It is also known as specific orders costing or production order costing. Under this method of costing, each job, batch or contract is treated as a cost unit and costs are collected and built up accordingly.
According to “ICMA”, London, it is that category of basic costing method which is applicable where the work consists of separate contract job or batches each of which is authorized by specific order or contract."
It is followed by manufacturing and non-manufacturing concerns. Under this method of costing, each job or batch or contract is treated as cost unit and costs are collected and built up accordingly.
Applications of Job Costing
Job Costing is employed in industries in which:
a) A production is done on the basis of customer’s own specifications.
b) Products are manufactured in distinguishable lots.
c) Products are not uniform.
d) It is practical to maintain a separate record of each lot from the time production is begun until it is completed.
Following is the list of manufacturing industries which generally employ job costing method:
a) Printing Work.
b) Design Engineering Concerns.
c) Garments makers.
d) Construction companies.
e) Furniture makers.
f) Hardware industry.
g) Ship Builders.
h) Foundries.
i) Shoe makers.
j) Machine tool manufacturers etc.
Following is the list of non manufacturing industries which generally employ job costing method:
a) Automobile repairing shops.
b) Consultant Engineers.
c) Audit firms.
d) Contract carriage suppliers.
e) Interior decoration.
f) Repair Works etc.
Difference between Job costing and Process Costing
Basis of distinction | Job Costing | Process Costing |
Basic | Job costing is used when the cost object is an individual (or a lot/batch) unit or a distinct product or service. | Process Costing is generally used for a mass of identical product or service. |
Accumulation of Cost | Costs can be accumulated by each individual product or service. | The Costs are accumulated in a period. The total costs in a period are divided over the number of units to get an average unit cost. |
Cost Determination | Job costing is done against a specific order being produced. | Costs are compiled for each process over a period of time. |
Cost Calculation | Costs are calculated when a job is over. | Costs are calculated at the end of a cost period like an accounting year. |
Transfer | There are usually no transfers of costs from one job to another. | Transfer of costs from one process to another is made as the product moves from one process to the other. |
Forms and Details | There is more paper work. | It has lesser paper work. |
Inventory | There is little or no inventory. | There is regular and significant inventory. |
Mechanization | It is less amenable to mechanization & automation. | It is more amenable to mechanization & automation. |
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