Job Order Costing

Job Order Costing

Overview

Job order costing is a process in which the manufacturing costs of different individual items produced within a company are accumulated and assigned. The system is usually applied when the output products have different characteristics, and each product has a different price. It’s also applicable in scenarios where customers make specific orders about the quality of their desired outcome. Every manufactured product is considered a job as well as the offered services. E.g. In a case where a company changes the quality of a truck to meet their customer requirements, all services will be taken a job. The job is used to track the cost of the output produced by analyzing costs incurred when producing a specific product, the labor involved, and the materials used. Various documents are used when tracking data. They include; Time ticket, materials requisition form, and job cost sheet.

Purpose of research

To understand the importance of applying the Job Order Costing system in various companies that offer different services concerning customer preference.

Literature Review

According to Kelly, M., & Shoemaker, N. (2017), the process of production guides companies matches how the cost flows by comparing the cost flow to the products’ flow. Firstly, the company stores materials brought in from the suppliers in the materials storeroom, whereby their costs are recorded. The process goes on, as now contents are moved to the departments of production where the processed materials become partially manufactured products, otherwise known as work in process. Once the products are completed, they are moved to the next storeroom. Goods are sold, and their prices transferred to the cost of goods sold. These apply to both products and services. Pollard, W. B. (2018), gives the main objectives of job order requiring; it helps companies come up with actual costs of jobs that are similar and that are going to be implemented in the future as put in the record. The management will, therefore, have a guideline to quote prices. The second objective is that it helps to determine production cost and thus learn profit or loss incurred during its execution. The management will consequently know every job’s profitability.

Abdullah, S. (2018), explains that a company should look into several issues before adopting a job order system; they should make sure that every job should be identifiable in all stages that are, from the raw materials stage to the completion stage. The company should also be in deep need of the system that is, and it should adopt it when necessary because it is quite expensive and needs much effort in estimating costs, production scheduling as well as designing. This ensures that the company works efficiently to achieve its goals.

Conclusion

Job order costing is an essential requirement for any industry as it gives an outline on how to price commodities, making it easy for a business to come up with the best pricing amount for different products. By doing this, the benefits are at maximum. Costs of goods, as well as services, are monitored thoroughly in all stages to determine the selling price accurately. This ensures that the company does not incur losses. Every company should, however, be in a position to uphold the system and manage it so that it will work to their benefit. For instance, as earlier said, they should be able to afford it and be in a position to manage it due to the load of work that comes with it. The initial cost of production should be calculated very keenly as it is crucial in determining the price at which the product is sold. Any errors made affect the sales of the company (Putri, R. L. (2017).

Personal Thoughts

Every company’s success is dependent on how things are run. Everyone is responsible, that is, employer, employees, and to some extent, the machinery and also the production process itself. It is, therefore, vital to ensure that the company does not make any losses, especially those that are avoidable. Attention should be paid to each production stage as well as all costs that have incurred so that the selling price can cover for it all. It is my sincere belief that companies should go out of their way to adopt the job order costing system as it will assist in keeping a record of all costs incurred, including those that may be neglected, such as those of services rendered. Companies should consider the pros and cons of the system and weigh them to know what fits the company best. The job order system also allows managers to decide whether it is advisable to deal with specific jobs in the future as they will know the profit gained on particular jobs. As I had stated earlier, everyone is responsible for the success of the company. In regards to that, job order costing helps in keeping track of how the team performs in terms of efficiency and productivity, therefore making it everyone’s responsibility to make the company succeed.

References

Abdullah, S. (2018). Analisis Perhitungan Harga Pokok Produksi Dengan Menggunakan Metode Job Order Costing (Studi Kasus Pada Rahmad Jaya Jepara Furniture) (Doctoral dissertation, Universitas Islam Negeri Sumatera Utara).

Kelly, M., & Shoemaker, N. (2017). Lumberjack Construction: Job-Order Costing & Manufacturing Simulation. Journal of Accounting and Finance, 17(5).

Putri, R. L. (2017). Analysis Of Production Cost Calculations Using Process Costing Method In Suli Tofu Factory. Ekonomika’45, 5(1).