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    Shah Abdul Latif University Khairpur Mir's: Sindh

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    This document discusses the importance of job order costing and process costing for classifying costs and compiling comprehensive reports. Job order costing allows companies to calculate costs for individual jobs or orders and assess profitability. It also enables evaluation of employee performance. Process costing is used to allocate costs for homogeneous products. It provides advantages such as being easy to use, helping contain costs, aiding inventory control, ensuring uniformity across departments, and allowing flexibility. Both systems are important for accurate costing and financial reporting.

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    Shah Abdul Latif University Khairpur Mir's: Sindh

    Uploaded by

    Afaque Ahmed Balouch
    143 views6 pages
    This document discusses the importance of job order costing and process costing for classifying costs and compiling comprehensive reports. Job order costing allows companies to calculate costs for individual jobs or orders and assess profitability. It also enables evaluation of employee performance. Process costing is used to allocate costs for homogeneous products. It provides advantages such as being easy to use, helping contain costs, aiding inventory control, ensuring uniformity across departments, and allowing flexibility. Both systems are important for accurate costing and financial reporting.

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    This document discusses the importance of job order costing and process costing for classifying costs and compiling comprehensive reports. Job order costing allows companies to calculate costs for individual jobs or orders and assess profitability. It also enables evaluation of employee performance. Process costing is used to allocate costs for homogeneous products. It provides advantages such as being easy to use, helping contain costs, aiding inventory control, ensuring uniformity across departments, and allowing flexibility. Both systems are important for accurate costing and financial reporting.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    143 views6 pages

    Shah Abdul Latif University Khairpur Mir's: Sindh

    Uploaded by

    Afaque Ahmed Balouch
    This document discusses the importance of job order costing and process costing for classifying costs and compiling comprehensive reports. Job order costing allows companies to calculate costs for individual jobs or orders and assess profitability. It also enables evaluation of employee performance. Process costing is used to allocate costs for homogeneous products. It provides advantages such as being easy to use, helping contain costs, aiding inventory control, ensuring uniformity across departments, and allowing flexibility. Both systems are important for accurate costing and financial reporting.

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    of 6

    Shah Abdul Latif University

    Khairpur Mirs

    Sindh

    DEPARTMENT OF COMMERCE

    TOPIC: HOW JOB ORDER COSTING AND PROCESS


    COSTING ARE IMPORTANT FOR CLASSIFICATIONS OF
    COST AND COMPILING THE COMPREHENSIVE
    REPORTS.
    Teacher

    Prof: dr:Mumtaz Junejo.


    Author

    SHEENA ANSARI (37)


    M.Com (final)
    Session 2015


    IMPORTANCE OF JOB ODER
    COSTING FOR CLASSIFICATION OF
    COST AND COMPILING THE
    COMPREHESIVE REPORTS

    A job order costing system delivers a very efficient method to calculate the
    exact expenses required for materials, labor, and overhead before producing
    an item. Getting relevant information about manufacturing costs allows you
    to evaluate profitability and decide whether you should produce that
    particular item or not. Besides this great advantage, job order
    costing delivers many unique benefits that set it apart from process costing
    another commonly used cost calculation method in the manufacturing sector.
    To understand why you should implement the first alternative into your
    business, youre welcome to read the following seven paragraphs.
    1.

    Profitability: The job costing system allows you to assign costs

    separately to individual operations and calculate the profit margin youll be


    getting on each job. This way, you can decide which operations are more
    profitable for producing a specific product. Although this particular function
    indicates that the system is suitable especially for the companies that handle
    custom orders, it can be used by any manufacturer who wants to get detailed
    statistics regarding individual manufacturing operations.
    2.

    Performance: A job order costing system also enables you to assess

    the performance of your employees. Unlike process costing, which


    ascertains the qualities of an entire workgroup or department, job order
    costing provides sufficient information to help you evaluate individual

    performance data in terms of productivity, efficiency, and cost-control. With


    the help of this tool, you can identify the employees who fail to meet
    performance expectations.
    Following are the advantages of job order cost accounting:
    (i) It provides a detailed analysis of cost of materials, wages, and overheads classified by
    functions, departments and nature of expenses which enable the management to
    determine the operating efficiency of the different factors of production, production
    centres and the functional units.
    (ii) It records costs more accurately and facilitates cost control by comparing actuals with
    estimates.
    (iii) It enables the management to ascertain which of the jobs are more profitable than the
    others, which are less profitable and which are incurring losses.
    (iv) It provides a basis for estimating the cost of similar jobs taken up in future and thus
    helps in future production planning.
    (v) Determination of predetermined overhead rates in job costing necessitates the
    application of a system of budgetary control of overheads with all its advantages.
    (vi) Identification of spoilage and defectives with the respective production orders and
    departments may enable the manager, lent to take effective steps in reducing these to the
    minimum.
    (vii) The detailed cost records of the past years can be used for statistical purposes in the
    determination of the trends of cost of the different types of jobs and their relative
    efficiencies.
    (viii) It is useful in quoting cost plus contract.
    Your goals are the material cost you hope to meet or beat, the labor cost you hope to
    achieve, and the subcontractor cost you anticipate.
    Once you have sold the job and production begins, you keep records of your expenses for
    that job in each category of your estimate. How are you doing on meeting these goals?
    This collection of data is critical to your success because it sets the stage for accuracy in
    your future estimates. Only by gathering accurate and timely job cost information will
    you be able to gauge job performance, and keep your estimating information up-to-date.

    Job costing has a second important benefitas a big picture financial control. You are
    working hard to keep total job costs at the percentage of income you target with your

    Continue Monitoring: Job order costing allows you to monitor the


    production process continuously, giving you enough time to identify
    potential issues and make corrections to avoid catastrophic situations, such
    as producing defective items or going over budget even before the
    manufacturing process ends.
    These are the top benefits of implementing a job order costing system in
    your company. Regardless of your industry niche, you can use this system
    alone or along with other systems to create a truly smart solution for your
    business.

    IMPORTANCE OF JOB
    PROCESS COSTING FOR

    CLASSIFICATION OF COST AND


    COMPILING THE COMPREHESIVE
    REPORTS

    Many companies use some type of system to determine the minimum value
    of produced products. Process costing is an allocation system companies use
    to allocate cost for homogeneous items produced by a company.
    Homogeneous products represent items that are very similar or
    indistinguishable from each other. Lumber, soda pop and chemical products
    are a few examples of homogeneous products. Process costing provides
    companies with a few advantages and disadvantages.
    1. Easy To Use.
    Process costing is an easier system to use when costing homogenous
    products compared to other cost allocation methods. Business owners

    allocate business costs according to the number of processes each


    good travels through in the production system. Each process applies
    direct materials, labor and manufacturing overhead to the production
    cost total. Management accountants take the total number of goods
    leaving the process and divide the total process cost by this number.
    This creates a simple average cost for each item produced.
    2. Cost Containment
    A business that implements a process costing system can better contain
    manufacturing expenses. Under this system, each department is assigned a cost
    center. A cost center is a number or code that identifies the purchases made by a
    single department. As financial expenditures, such as the acquisition of supplies
    and employee salaries, are made throughout the production process, each group
    creates a report highlighting purchases that have been made under its respective
    cost center.
    These reports are compiled and reviewed by senior management. This data allows
    them to identify inefficiencies within the supply chain. For example, a cost center
    report may indicate that 50 percent of production costs come from the
    procurement department. Management can then dictate steps that the procurement
    team must take to minimize costs.
    3. Inventory Control
    The Internal Revenue Service requires all businesses that maintain an inventory to
    meticulously track and report its supply. The IRS uses this information to
    accurately value the business so that tax estimates can be made. Tracking
    inventory can be a cumbersome task for very large corporations. This process can
    be simplified, however, through the implementation of a process costing system.
    Throughout the manufacturing process, each department documents any materials
    purchased. In addition, each good is valued and added to the cost center report.
    Management includes this information on the companys income tax returns.
    4. Uniformity

    Many organizations allow each of their departments to operate autonomously. For


    example, the procurement department will have policies and procedure that are
    completely unique and independent of those of the supply chain group. This can
    be an incredibly ineffective way for a business to operate.
    Each department, in this scenario, may have its own jargon, making
    interdepartmental communication difficult. Furthermore, maintaining separate
    systems and policies means that additional money and time must be spent to
    cross-train employees. Through the implementation of a process costing system, a
    company will ensure that every department, regardless of function, operates in a
    uniform manner. This will allow members of the manufacturing supply chain to
    be in sync with one another.
    5. Easy To Use.
    Process costing is an easier system to use when costing homogenous products
    compared to other cost allocation methods. Business owners allocate business
    costs according to the number of processes each good travels through in the
    production system. Each process applies direct materials, labor and manufacturing
    overhead to the production cost total. Management accountants take the total
    number of goods leaving the process and divide the total process cost by this
    number. This creates a simple average cost for each item produced.

    6. Flexible
    Business owners use process costing because it creates a flexible production
    process. Companies needing to refine their process can simply add or remove a
    process as necessary. This also allows companies to lower their production cost
    for each good. Business owners typically look for ways to refine a production
    process to increase cost savings. Eliminating redundant processes often achieves
    this goal. Adding a process allows companies to produce slightly different goods
    or improve product quality.

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