Job costing

           Job costing is a system of costing in which costs are ascertained in terms of a specific job that is not necessarily similar to another job. The unit of cost in this method is a job / a specific work order. A job is a specific order for work that is usually carried out within the factory.
         

        Job costing involves a considerable amount of recording & analysis. It requires reliable production control records which must show material issued to various jobs, labor time spent on different jobs & appropriate allocation of overheads. Each job passes through production cost centers. A separate job cost sheet is maintained for each job/product in which all expenses of material, labor, & overhead are recorded. The cost of completing a job /manufacturing a product is found out.

Nature & suitability of job costing :
       
            Many organizations manufacture products / provide services on receipt of a specific order from a customer as per his requirements. In such a case, no two jobs are necessarily alike & they don't pass through the same manufacturing process. Different jobs require a different amount of material, labor, and skills. Thus, job costing is used when products/ services are dissimilar.
       

          The distinguishing features of a situation where the job costing method is applied are as follows:

1. The job is undertaken for a specific customer & not for mass production.
2. Each job is unique. It has its own characteristics & needs special treatment. No two jobs are necessarily alike.
3. Each job doesn't pass through the same manufacturing process. The nature of the job determines the depts through which the job has been produced.
4. Cost can be identified with a specific job/order.
5. The job can be identified at each stage of production, from start to completion of the job.
6. The work-in-progress differs from time to time depending upon the no.of jobs on hand.
7. The time required to complete a job is comparatively short compared to a contract.
      

          Thus, job costing is generally used in the following types of industries :
(a) printing, where each print requires a specific type of paper, ink, design
(b)Furniture, where it is manufactured as per the specific requirements of a customer.
(c)Repair works
(d)shipbuilders,
(e)Interior decoration, advertising, and other professional services, where each job needs special treatment.

Objectives : 

The following are the main objectives of job costing.
1. To ascertain the cost of each individual job/order.
2. To determine the profit /loss of each job.
3. To help the management in the valuation of work-in-progress.
4. To help in the estimation of the cost of an order / a job so as to quote a price to the prospective customer.
5. To serve as a tool of cost control by comparing the actual cost with the estimated cost.

Advantages:  The advantages of job costing are as follows:

1. It helps in ascertaining the cost of each job separately.

2. It provides a detailed analysis of various elements of cost which enables management to identify inefficiencies in operations.

3. It helps to distinguish profitable jobs from unprofitable jobs.

4. It helps in the valuation of uncompleted jobs.

5. Wastage, spoilage & defective work can be reported for specific jobs enabling the management to take corrective action.

6. This method is easy to operate as costs are recorded job-wise.
             

             The major disadvantage of job costing is that it requires detailed records for specific jobs & is therefore expensive & time-consuming.