The Rise of Flat Tax
Governments all over the world generally levy graduated taxes on their population. This means that as the income being taxed increases, the tax rate also increases. Under a graduated tax structure, some amount of income is exempted from the tax. Then, there is a different tax slab, which becomes applicable as soon as the income […]
Venture Debt – A Primer
The Fed has decided to raise interest rates steeply. One rate hike has already been announced this year (2018). It is likely that there are many more rate hikes to follow until the year 2020. The cost of capital is likely to go up. In a high-interest rate scenario, investors typically prefer to invest in […]
Bernie Madoff Scandal
The Bernie Madoff scandal was a story of a $50 billion embezzlement and Ponzi scheme run by Madoff Securities LLC. The scandal broke out in 2008 and sent shockwaves in the United States as well as across the world. The world had seen many Ponzi schemes. However, this one was unique given the fact that […]
What is Accounting? – Meaning and Important Concepts
Accounting has been hailed by many as the “language of business”. There are many quotations like “A pen is mightier than the sword but no match for the accountant” by Jonathan Glancey which tell us about the power and importance of accounting. The text book definition of accounting states that it includes recording, summarizing, reporting […]
Disadvantages of Strategic Financial Management
There is no philosophy in the management domain which has not been criticized. The strategic financial management philosophy is no exception. Although it has been proven that there are numerous benefits to implementing this framework of decision making, there are some associated costs as well. This is because of the various disadvantages that accompany the […]
Law firms all across the world practice job costing. Most law firms charge an hourly rate to their clients. This rate is derived on the basis of the same factors direct material, direct labour as well as overheads. In case of law firms, the direct material used is negligible. The majority of the hourly rate signifies the expenses that have to be paid as salaries to the employee lawyers. The overheads required for maintaining the office and shared facilities is split amongst clients based on an estimated overhead.
Movie studios like Walt Disney also follow job costing. Every movie that they produce is a specific job. They allocate costs based on the material and labour that has spent while creating the movie. The tough part is to apportion the cost of equipment, studios and other such shared facilities amongst the various jobs that are being performed i.e. the movies that are being produced.
The cost of Medicare has been a major concern all over the world, of late. This has prompted many hospitals to have a closer look at their costs. Most medical service providers are using job costing to do so. A rational allocation of costs is the only way that costs can be brought down for certain ailments. Proper apportioning of costs ensures that people who common in for medication for common flu do not have to pay for the overheads incurred as a result of having equipment for major diseases like cardiac arrests, strokes, kidney failure etc.
The big 4 accounting firms have always used job costing to bill their clients. Their model is very similar to that of the law firms. With accountants too, the cost of material is negligible. Labour costs can be ascertained fairly easily. The real difficulty is to apportion the overheads amongst varios clients.
Companies that build custom software for clients also use job order costing systems. Most accept a fixed rate project, while some clients insist on time and material. However, the majority of expenditure in a software firm is overheads. These need to be apportioned fairly amongst the different clients.
Service firms have led to the development of job costing procedures. Earlier materials were the major component of costs and could be easily tracked. However, keeping a track of the amount of labour spent on different jobs and their productivity has been the result of the efforts of service firms. Some of their methods and procedures have been adopted by the manufacturing sector too. This has led to increased productivity.
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