Job Costing Definition
Job costing is defined as a method of recording the costs of a manufacturing job, rather than process. With costing systems, a project manager or accountant can keep track of the cost of each job, maintaining data which is often more relevant to the operations of the business.
According to Eric Kohler___ “Job costing is a method of cost accounting whereby cost is compiled for a specific quantity of product, equipment, repair or other service that moves through the production process as a continuously identifiable unit, applicable material, labour, direct expenses and usually a calculated portion of the overhead being charged to job order”.
Objectives of Job Costing
- It used to ascertain the cost as well as the profit or loss on each job.
- To find out those jobs which are more profitable and those which are not profitable or less profitable.
- It also intended to indicate, through the comparison of actual cost of a job with its estimated cost, whether the estimation is incorrect or the actual cost is excessive.
- To provide a basis for estimating or determining the cost of similar jobs undertaken in future.
- It is helpful to ascertain the cost as well as the profit or loss on each job separately.
- It helps the management to know about the profitability of the jobs.
- It is best suited for cost plus contract.
- It provides detailed analysis of the elements of cost which is quite useful for the preparation of cost estimates and quotations.
- Under this method of costing, spoilage and defective jobs can be easily identified and responsibility for the same can be fixed on specific departments or individuals.
- The cost data relating to completed jobs is helpful to the management to know the trend of material, labour and overhead costs and to control the future job costs.
- It involves more clerical work for cost collection. It involves more supervision. These add to cost and make it costly.
- Under this method of costing, costs are required to be collected for a large number of small jobs. So the chances of errors in cost collection are more in job costing.