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Cost Accounting

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Job Costing

In case of special-order concerns products produced or jobs undertaken are of diverse nature. They involve materials and labour in different quantities and entail different amounts of overhead costs. In such concerns, it is necessary to keep a separate record of each lot of products or jobs from the time the work on the job or product begins till it is completed. A separate job card or cost sheet is maintained for each job or product in which all expenses of materials, labour, overheads are entered and cost of completing a job or manufacturing a product is found out. Such a cost system is known as job or terminal or specific costing.

Objectives of job costing

Job costing serves the following objectives:

(a) It helps in finding out the cost of production of every order and thus helps in ascertaining profit or loss made out on its execution. The management can judge the profitability of each job and decide its future course of action.

(b) It helps management in making more accurate estimates about the costs of similar jobs to be executed in future on the basis of past records. The management can conveniently and accurately determine and quote prices for orders a similar nature which are prospective.

(c) It enables management to control operational inefficiency by comparing actual costs with the estimated ones.

A system of job costing should be adopted after considering the following two factors:

(i) Each order or job should be continuously identifiable from the raw material stage to the stage of completion.

(ii) The system is very expensive because it requires a lot of clerical work in estimating costs, designing and scheduling of production. It should, therefore be adopted when absolutely warranted.

Job order number

Every order received is allotted a certain number from a running list maintained for this purpose. Every order or job will be known by its number throughout its production process in the factory.

Production/job order

A production/job order is a written order issued to the manufacturing department to proceed with a job. It is issued by the Production Planning Department on receipt of a job order to the foreman of the relevant department. Instructions to the costing department to collect particulars of costs on execution of the job are also issued simultaneously. The production order is prepared with sufficient copies for the departmental managers or foremen who will be required to take any part in the production.