Advantages of job Costing
Job Costing offers the following specific advantages:-
1) The cost material, labour, and overhead for every job or product in a department is available daily, weekly or as often as required while the job is still in progress. This enable the management to know the trend of the costs and this by the efficiency of operations.
2) On completion of a job, the cost under each element is immediately ascertained. Cost may be compared with the selling prices of he products in order to determine their profitability and to decide which product lines should be pushed or discontinued or whether prices or price quotation could be revised. The application of marginal costing techniques may be useful in such situations.
3) Historical costs for past periods for each product, compiled by orders, departments, or machines, provide useful statistics for future production planning and for estimating the costs of similar jobs to be taken up in future. This assists in the prompt furnishing of price quotations for specific jobs.
4) The adoption of predetermined overhead rates in job costing necessitates the application of a system of budgetary control of overhead with all its advantages.
5) The actual overhead costs are compared with the overhead applied at predetermined rates; thus at the end of an accounting period, overhead variances can be analyzed.
6) Spoilage and defective work can be easily identified with specific jobs or products so that responsibility may be fixed on determents or individuals.
7) Job costing is particularly suitable for cost-plus and such other contracts where selling price is determined directly on the basis of costs.
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