Advantages of Job order Costing
Possible To Appraise The Job:
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.
Comparison of Re-work:
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.
Comparison Of Machine Usage:
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.
Authorship/Referencing - About the Author(s)
The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
- What is Job Order Costing ?
- Relationship Between Types of Costs and Inventory
- Types of Costs to be Allocated in Job Order Costing
- Allocating Overheads in Job Order Costing
- Pre-Determined Allocation Rate
- Paper-Work in Job Order Costing
- Job Costing and Service Firms
- Advantages of Job order Costing
- Disadvantages of Job Order Costing System
- Procedure of Job Order Costing
- Spoilage and Rework in Job Order Costing System
- Scrap and Job Order Costing
- Contribution Margin
- Multiproduct Contribution Margin
- Constraints and Contribution Margin Analysis
- Consequences of Incorrect Job Order Costing