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What are the advantages and disadvantages of job costing?
Job costing is a costing method which is executed the work according to specifications of the customer. This production process depends on orders received from customers. This cost is ascertained for each job separately and it vary from customer to customer
Objectives
- Ascertain cost, profit & loss of each job
- Profitable and non-profitable jobs are identified
- Cost controlling
- Actual cost to estimated cost are compared
Characteristics
- Adopted by both non0manufacturing and manufacturing concerns
- Goods produces according to customer specifications follows this method
- Work is analyzed in different jobs
- Separate account is maintained
- Each job is treated separately
- Production is not continuous and intermittent
- Profit & loss made on each job is found separately
Advantages
- Gives detail analysis of costs in each job in the manufacturing process.
- Determines profitability of the job.
- Duplication of work is prevented.
- Manufactures efficiency is taken into account.
- Defective work can be rectified immediately.
- Budget can be controlled.
- Determines job based on work done/doing.
- Quality of work is evaluated.
- Overheads costs are easily calculated
- Keeps tracks on various components of work (material, money, performances etc.)
Disadvantages
- Expenditures/unwanted costs occurred between processes are difficult to prevent.
- Very expensive.
- No standard procedure in estimation.
- Not useful for cost efficient and fast paced jobs.
- More clerical work is required.
- More number of people are required for a single job/project.
- No cost control.
- Jobs depend on the market conditions.
- Correction can’t be done if estimated profit is higher than actual profit.
- Should maintain proper record work, otherwise it leads to major loss.
- Not 100% accurate.
- Historical in nature
Updated on: 18-May-2022
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