Job Costing Definition
The basic definition of Job Costing, is the calculation of all costs
incurred in order to do a Job. These costs can be comprised of raw
materials, labour, outwork and overhead costs.
Definition of a Job
a Job is will depend on the type of business. A manufacturing business
will define a Job as being the process to manufacture one or more
products. In some cases these products will always be made in the same
way. An example is a company which manufactures bottles of vinegar. The
quantity of products being made by a Job will also vary, depending on
the type of product. Some manufacturing companies manufacture high
volumes in a single Job. Other companies will manufacture small
quantities often with a high value and often made to order for a
customer, for example a company making specialised trailer bodies.
businesses will define a Job as being work done specifically for a
customer and where the item being manufactured, is to the customer’s
specific requirements. An example here is a company making curtains and
Jobs are also used in businesses which repair
or services items. Motor repair workshops and plumbers fall into this
category of business. Sometimes these Jobs will have a Quote done
initially, so the price to the customer is fixed in advance, other types
will raise a Quote but then add on any extra costs to the final
In essence, what defines a Job is not the same for all
businesses. The common factor is that the actual cost of the Job,
regardless of its size or duration is calculated.
Why Use Job Costing?
are a number of benefits of Job Costing. The main benefit is that costs
of Jobs are accurately measured so that profitably can be calculated
and areas where costs are too high can be identified and rectified
quickly. In some cases, Jobs can be categorised and the average
profitability can be calculated over all Jobs in a category. This can
help to identify patterns and to investigate specific types of Jobs
which are less profitable than others. Job Costing is also used to
ensure the selling price of manufactured products are correct and, in
the case of a business having more customer specific type Jobs, that
charges are being correctly calculated.
A Job can have an
Estimate or a Quote linked to it, which will be used to measure the
expected costs and usage against the actual cost. This helps to ensure
that Quoting methods are efficient, with all costs being taken into
account and realistic labour times being used. The same applies to
Creating Jobs assists with planning. Regardless of
whether you are manufacturing bulk items, making specific products to
order, or repairing or servicing items, having Jobs can assist with
allocation of the resources required and issuing efficient purchase
orders to suppliers to avoid time lost due to stock shortages.
valuable use of having Job Costing is the control over Work in Progress
(WIP). This may not be a factor when the Jobs are low value and of
short duration, but for many businesses it is important to control the
value of WIP products.
An Integrated Job Costing Software System
on the complexity of the business, gathering, collating and analysing
costs for Jobs can be time consuming and complex. Often the difficulty
of doing all this manually means that it just does not get done at all.
An integrated Job Costing software can change all of that.
a software package which handles all the Accounting and Bookkeeping
requirements as well as handling Stock or Inventory Control. The system
allows the various costs, to be allocated to the relevant Job at the
point at which the transaction is entered into the system. This
drastically reduces the time factor and also improves accuracy. The
system can also link Quotes or Estimates to Jobs and information such as
raw material requirements and movements can be linked, making planning
and WIP control more manageable and efficient. The system can then be
used to analyse Jobs making it easier to increase productivity and
profitably. These are just some of the basic benefits of having an
Integrated Job Costing System which often falls under the ERP
(Enterprise Resource Planning) terminology.
Examples of Integrated Job Costing
A company which manufactures custom made off-road trailers.
company manufactures off-road camping trailers. They have four standard
models which they supply to dealers on order but they will also modify a
trailer to a customer’s requirements at an extra charge.
off-road trailer is ordered, a Job is created with all the customer
details. For standard models, a Bill of Materials (BOM) is pulled in,
which contains all the raw materials and labour costs which are required
to process the order. The Stock Control system picks up the raw
material requirements and will show if any items need to be ordered from
the suppliers. Certain items may not be held in stock and the system
will allow Purchase Orders for these items to be linked to the Job and
when the goods are delivered the cost of the items are allocated to the
Job automatically. Stock issued from the stock room can be linked to the
Job as it is issued, meaning that all raw material usage is captured.
Labour time sheets are also captured and linked to the Job, covering the
labour costs. Once the trailer has been completed the Job can be
invoiced out to the customer. If the trailer was ordered with some
custom requirements, a Quote could be done when the Job is created, and
once the trailer is manufactured the Quote is invoiced, thus ensuring
that the invoice value is correct.
With a fully integrated Job
Costing system, all transactions are allocated to a Job at the point
that they are entered into the system. Supplier Invoices, Timesheets,
Stock Issues and Sales Invoices all are allocated to the Job, which
gives control of the whole process from start to end. The Bill of
Materials links into the Stock Control, highlighting shortages. This all
gives the ability to extract information about the actual cost of the
Job, as well as comparison to estimates as the Job progresses, without
the overhead of data being captured more than once.
A plumbing company which does emergency repairs.
this scenario, sometimes a quote will be given to the customer and at
other times, the charge will be for the labour and parts used. A Job
will be opened in the system for each job or repair for a customer. In
some cases a Quote will be linked to the Job. As stock or parts are
used, they will be allocated to the Job; this can be either parts bought
from suppliers, parts from stock and outwork done by suppliers.
Timesheets capturing the number of hours worked by various employees
will be captured, as well as travelling costs and any extraordinary
expenses. Once the job or repair has been completed, an invoice will be
raised, either from the Quote or otherwise from all the costs incurred
during the course of the job and marked up accordingly. As in the first
example, reports can be extracted from the system and once again,
transactions are only captured once into the system.
Accounts offers a fully integrated Job Costing solution which caters
for many different types of Jobs and business environments.
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