What is Job Costing? Objectives and Advantages

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”.Job Costing

Objectives of Job Costing

  1. It used to ascertain the cost as well as the profit or loss on each job.
  2. To find out those jobs which are more profitable and those which are not profitable or less profitable.
  3. 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.
  4. To provide a basis for estimating or determining the cost of similar jobs undertaken in future.

Advantages

  1. It is helpful to ascertain the cost as well as the profit or loss on each job separately.
  2. It helps the management to know about the profitability of the jobs.
  3. It is best suited for cost plus contract.
  4. It provides detailed analysis of the elements of cost which is quite useful for the preparation of cost estimates and quotations.
  5. 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.
  6. 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.

Disadvantages

    1. It involves more clerical work for cost collection. It involves more supervision. These add to cost and make it costly.
    2. 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.