How Salary Caps Work in Sports Leagues?
It is common knowledge that sports leagues all over the world rake in billions of dollars when it comes to annual revenue. It is also known that all these leagues have a well-developed fan base. Famous leagues such as the English Premier League, the NBA, etc have various sports franchises which are very competitive. They […]
The Functions of a Financial System
Financial resources are scattered across the economy. This is the reason that there is a need for a financial system that can enable the timely deployment of these resources across different parts of the economy at the right time. A well-functioning financial system is supposed to perform several functions. Some of these functions have been […]
Entity Concept in Financial Accounting
The entity concept is one of the central tenets of accounting. An understanding of the same is therefore of paramount importance to students. However, the entity concept came as a solution to a problem faced by earlier accountants. To understand the benefits of the solution provided, we must look at the problem first. Confusion in […]
Sources of Revenue: Broadcasting Rights
The consistent generation of revenue is important for the success of any sports league. If the organizers of any of these leagues have to spend a large amount of time and resources to collect revenues, then they will not be able to focus on organizing the game. This is where the broadcasting rights come into […]
Calculating Free Cash Flows: The Case of Preferred Shares
In the previous few articles we understood how to calculate free cash flows which accrue to the firm as a whole as well as to equity shareholders. However, while conducting this analysis we made an implicit assumption. We assumed that there are only two classes of funds available to the firm, this is equity and […]
Job order costing is the only way that companies can appraise the jobs that they are about to take up. In the absence of a job order costing system, companies will not have enough data to ascertain whether or not the job will be profitable.
Job order costing system enables a company to make reliable estimates about the monetary values of materials, labor and overheads that will be spent while performing a job. A more efficient job order costing system enables companies to make quotes that are low enough to be competitive and high enough to be profitable.
Over a period of time, a job order costing system becomes a valuable database. This is because there are thousands of jobs that get stored in the system. These jobs can be used by companies as empirical data. This data can be used in multiple ways. One way is related to quotations as listed in the point above. Another use is when companies can conduct in depth analysis into their own efficiency. A job order costing system provides the data that is required to conduct the analysis by product or by function and aids significantly in decision making.
Companies can use the job order costing system to find the jobs that they are competitive at and the ones that they are not. This system helps conduct in depth analysis such as cost of materials and even the cost of scrap and rework that has been done in the specific job. This cost information helps the company financially. But it also helps the company to streamline its operations.
From the costs of scrap and rework, the causes of scrap and rework can be narrowed down and even eliminated. While implementing measures like six sigma and lean manufacturing many companies use the data collected as a result of job order costing.
Job order costing also helps the company identify use its fixed assets appropriately. Since the cost of machinery is allocated amongst different jobs, accurate identification of the cost incurred for those jobs is possible. In the absence of job order costing, it would be impossible to identify the manufacturing overheads associated with particular jobs as well as allocate these costs amongst different jobs.
In conclusion, the benefits mentioned above can only be realized if the system is implemented correctly. Job order costing system can be fairly difficult to maintain, but there are tremendous financial incentives for companies to do so.
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