Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers. Process costing is different from job costing, which is a method used when each customer job is different. Assume, for example, the XYZ Roofing provides each residential client a bid for a roof repair or replacement, and each roof is a different size and will require specific roofing equipment and a unique number of labor hours. The customer bid lists the labor, material and overhead costs for the
Job Order Costing “Costing is an accounting technique used to determine the exact expenses for materials, labor and overhead incurred in operations” (D. Ingram). Job order cost method is a method of costing used when the products are made based on specific customer orders. Job order costing records the actual materials and labor expenses for specific jobs, and assigns overhead to jobs at a pre-determined rate. Different costing methods have each their own strength and weaknesses that make them best suited for a vast array of situations. In the Job Order Costing method every product manufactured is considered it’s own unique job.
Second is Variable costs these are cost that very in direct proportion to changes in the level of activity. If a factory shut down and stop production completely, no variable costs will be incurred. For example include direct materials, direct wages and direct expenses. Third is Semi variable these are costs that contain both fixed and variable costs elements, in other words, the costs are not perfectly fixed. Fourth is Stepped fixed costs these cost are fixed over the range of activity and then rises to a new level as activity change.
I use job costing, because each client has a different request, such as whole house design or just 1 or 2 rooms designed; I can 't charge everyone the same amount, I 'd probably lose money and customers too for being overpriced if I gave everyone the same rate. That being said, job order costing helps companies and businesses like mine: "identify the trouble spots, so you can actually fix them, instead of thinking that your whole company is in trouble." (Majcher, n.d.). Process costing is better suited for other companies.
Also, various methods of controlling costs such as standard costing system and flexible budgets have close relation with the variable costing system, in turn making it easy to use those methods. 3. Companies using variable costing system are able to prepare income statement in contribution margin format that provides necessary information for cost volume profit (CVP) analysis. On the flip side, this data cannot be directly obtained from a traditional income statement prepared under absorption costing
The method is used for decision making and planning in the organization and used by the managers of the organizations. Organization uses this method to have accurate costing allocation in the production. It helps to have an accurate value of cost and profitability of each products and services. This methods help to convert indirect costs into direct costs which helps to achieve an accurate costs. The method helps to support decisions related to pricing, removing or adding items from the product protfolio and implementing evaluating processes for improvemnets in the organiation.
Budgeting can be defined as a solid process to decide the estimate of revenue and expenditure for the specific time period. This definition of budget serves for all, country, city, state, business or personal matter. It is observed that, each successful company never moves forwards without deploying budget process (Al-Shawabikah, 2000). So, talking about Personnel Budgeting, it is one of the crucial aspects of any business to keep labor or personnel budgeting in the mind at the start and end of the year to maintain or increase productivity and profitability of the business. In fact, it is similar to an operational plan, represented in the financial terms considering income and expenditure’s estimation (Dees & Paul, 2004).
If absorption costing is adopted in the report , the fixed manufacturing included in the analysis in a product cost would lead to a big differences in setting product selling price compared to variable costing. Referring Exhibit 2, using product A51 as an example, the unit gross profit was £320 and the contribution margin is £275, the differences can up to £95. For division managers, the figure of manufacturing fixed overhead is useless, in other words, this will cause distortion in evaluating individual product performance such as supervisory salaries that result from the arbitrary allocation of common cost. Hence, when adopting variable costing, it is necessary for Owen to identify or decide which part of process manufacturing individual products should restructure, expanse or
Fixed costs do not fluctuate in reference with the quantity of production. They are called fixed costs since they are fixed regardless of the quantity of manufacture. The costs of facility payment are cover under the fixed cost. Every month is the same regardless of how many cars General Motors produced during that period of time. Elements that can influence variable cost are; supply and demand, task difficulty, location and effectiveness.
As a result, the activity based costing method is the perfect curve for solving the problems of cost allocation within an organization and there are many companies in the world choose to use Activity-Based costing method. If we want to know what the budgeting process is, we should first learn what a budget is. Budget is a plan expressed in money, and it’s also a financial plan of action for specific future periods for individual units and for the firm as a single