Benefits Of Job Order Costing

1. Job Order

1.1 Definition

Job order costing is a system for assigning manufacturing costs to an individual product or batches of products. Generally, the job order costing system is used only when the products manufactured are sufficiently different from each other.

1.2 Explanation

It is types of costing in which indirect costs are allocated whilst direct are traced to different jobs instead of departments. Job Order is appropriate for businesses which provide non-uniform customized products and services. Due to variation in manufactured products job order costing system will create a job cost record for each item. It reports only direct labor and material actually used and the manufacturing overhead assigned to each job. For work in process,

Accounting, consulting and legal firms; ii. Architects; iii. Manufacturers of ships and airplanes; iv. Book publishers; and

v. Movie producers.

1.5 Benefits

Benefits of Job Order costing are as follows:

i. Allows the managers to calculate the profit earned on individual jobs; ii. Help managers to ascertain specific jobs are desirable to pursue in the future; iii. Suitable for highly custom work i.e. consultants; iv. Helps managers to keep track of individuals' and teams' performance in terms of cost-control, efficiency and productivity;

v. Help in determining average cost of each unit produced; vi. Help managers to assign costs separately to individual operations; vii. Enables managers to assess performance of employees; viii. Provide access to expense incurred on each job; ix. Help managers to calculate specific indirect cost such as manufacturing overhead;

x. Helps in monitoring production process; xi. Accurate; and xii. Deliver on a highly scalable solution.

2. Process Costing

2.1 Definition

Process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units produced. Processing cost is used when nearly identical units are mass produced.

2.2

For example:

i. Chemical Works; ii. Soap Making; iii. Box Making; iv. Paper Mills;

v. Oil refining; vi. Food products; and vii. Milk diary.

2.5 Benefits

i. Allows managers to get detailed information on the production statistics of individual departments or workgroups; ii. simplifies record keeping by relying on statistical calculations rather than actual inputs; iii. Help manager to compare quality and performance in entire department over time; iv. Determine process costs periodically at short intervals;

v. Simple and less expensive; vi. Help managers to evaluate performance of each process; vii. Easy to allocate expenses to processes in order to have accurate cost; and viii. Easy in quoting price.

3. Comparison and Contrast

i. Both systems have the same basic purposes—to assign material, labor, and manufacturing overhead costs to products and to provide a mechanism for computing unit product costs; ii. Both systems use the same basic manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished