<\/span><\/h2>\n\n\n\nProcess costing is that aspect of operation costing which is\nused to ascertain the cost of the product at each process or stage of\nmanufacture. This method of accounting used in industries where the process of\nmanufacture is divided into two or more processes. The objective is to find out\nthe total cost of the process and the unit cost of the process for each and\nevery process. Usually the industries where process costing used are textile,\noil industries, cement, pharmaceutical etc. <\/p>\n\n\n\n
ACCORDING TO\nCHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON<\/strong><\/p>\n\n\n\n\u201cProcess costing is that form of operation costing which\napplies where standardize goods are produced\u201d<\/p>\n\n\n\n
Process costing is a method of costing under which all costs\nare accumulated for each stage of production or process, and the cost per unit\nof product is ascertained at each stage of production by dividing the cost of each\nprocess by the normal output of that process.<\/p>\n\n\n\n
<\/span>FEATURES OF PROCESS COSTING<\/strong><\/span><\/h4>\n\n\n\nProcess costing is that aspect of operation costing which is\nused to ascertain the cost of the product at each process or stage of\nmanufacture, where processes are carried on having one or more of the following\nfeatures:<\/p>\n\n\n\n
CONTINUOUS PROCESS:<\/strong>\nProduction is done having a continuous flow of identical products except where\nplant and machinery is shut down for repairs, etc.<\/p>\n\n\n\nCLEARLY DEFINED\nPROCESS: <\/strong>In Process Costing, there is clearly defined process cost centres\nand the accumulation or all costs (materials, labour and overheads) by the cost\ncentres.<\/p>\n\n\n\nACCURACY OF RECORDS:<\/strong>\nThe maintenance of accurate records of units and part units produced and cost\nincurred by each process.<\/p>\n\n\n\nTRANSFER OF\nMATERIALS:<\/strong> The finished product of\none process becomes the raw materials of the next process or operation and so\non until the final product is obtained.<\/p>\n\n\n\nTYPES OF LOSSES:<\/strong> Avoidable and unavoidable losses usually arise\nat different stages of manufacture for various reasons. Treatment of normal and\nabnormal losses or gains is to be studied in this method of costing.<\/p>\n\n\n\nCHECK ON INEFFICIENCY\nIS POSSIBLE:<\/strong> Sometimes goods are transferred from one process to another\nprocess not at cost price but at transfer price just to compare this with the market\nprice and to have a check on the inefficiency and losses occurring in a\nparticular process. Elimination of profit element from stock is to be learnt in\nthis method of costing.<\/p>\n\n\n\nMEASUREMENT OF\nPRODUCTION AT EVERY STAGE:<\/strong> In order to obtain accurate average costs, it is\nnecessary to measure the production at various stages of manufacture as all the\ninput units may not be converted into finished goods; some may be in progress. Calculation\nof effective units is to be learnt in this method of costing.<\/p>\n\n\n\nJOINT PRODUCTS OR\nBY-PRODUCTS:<\/strong> Different products with or without by-products are\nsimultaneously produced at one or more stages or processes of manufacture. The\nvaluation of by-products and apportionment of joint cost before point of\nseparation is an important aspect of this method of costing. In certain\nindustries, by-products may require further processing before they can be sold.\nA main product of one firm may be a by-product of another firm and in certain\ncircumstances, it may be available in the market at prices which are lower than\nthe cost to the first mentioned firm. It is essential, therefore, that this\ncost be known so that advantages can be taken of these market conditions.<\/p>\n\n\n\nUNIFORM OUTPUT:<\/strong>\nOutput is uniform and all units are exactly identical during one or more processes.\nSo the cost per unit of production can be ascertained only by averaging the\nexpenditure incurred during a particular period. <\/p>\n\n\n\n<\/span>APPLICATIONS OF PROCESS COSTING<\/strong><\/span><\/h4>\n\n\n\nThe industries in which process costs may be used are many.\nIn fact a process costing system can usually be devised in all industries\nexcept where job, batch or unit or operation costing is necessary. In particular,\nthe following are examples of industries where process costing is applied:<\/p>\n\n\n\n
1. IDENTICAL PRODUCTS\nINDUSTRIES <\/strong><\/p>\n\n\n\nProcess costing is most often used when manufacturers\nrelease identical products. If mass produced televisions have the same parts,\nmanufacturers can assign consistent prices to the products based on how much the\nproducts cost to manufacture overall. <\/p>\n\n\n\n
2. INDUSTRIES WITH\nMULTIPLE DEPARTMENTS <\/strong><\/p>\n\n\n\nBusinesses that have multiple departments usually use\nprocess costing so that management can assess the costs accumulated by each\ndepartment. For example, one department can take the raw resources and refine them\nbefore turning them into finished parts, another department can assemble the\nparts and a third department can test the finished product to assess both\nquality and safety. Materials might need to be shipped from one department to\nanother, which may incur additional costs. When the costs of production go up\nunexpectedly, process costing can allow management to quickly pinpoint the\ndepartment responsible for the increased costs and identify the source of the\nincreased cost. <\/p>\n\n\n\n
3. INDUSTRIES WITH\nINTERCHANGEABLE PARTS <\/strong><\/p>\n\n\n\nProcess costing comes into play when a factory manufactures\nidentical parts. For example, a computer manufacturing plant will create\nnumerous components that are interchangeable among computers of the same model.\nProcess costing allows manufacturers to sell individual parts separately to\ncomputer repair shops or individual buyers, since the manufacturers know the\ncost of the separate parts. <\/p>\n\n\n\n
4. INDUSTRIES WITH\nVARYING PRODUCT FEATURES <\/strong><\/p>\n\n\n\nProducts that have multiple extraneous features can benefit\nfrom process costing. Manufacturers can release two versions of the product,\nwith one version costing less but having fewer features and another product costing\nmore but having more features. For example, a manufacturer might release two\ncoffee pots, one with a timer and one without. Process costing lets the\nmanufacturer know how much the timer costs to add to the coffee pot, which\nenables the manufacturer to gauge how much it must raise the price on the coffee\npot with the timer. <\/p>\n\n\n\n
5. INNOVATIVE\nINDUSTRIES <\/strong><\/p>\n\n\n\nProcess costs are important in industries that have high\ninnovation. For example, manufacturers cannot determine an appropriate price\nfor a new type of product without knowing how much the product will cost to manufacture\noverall. In addition, businesses cannot determine if a product will be\nprofitable until they know the overall cost so they can estimate the maximum\nprice that customers will pay for the product.<\/p>\n\n\n\n
<\/span>GENERAL PRINCIPLES OF PROCESS COSTING<\/strong><\/span><\/h4>\n\n\n\n 1. The majority of\nitems of cost can ordinarily be identified with specific processes and\ncollected and accumulated separately for each period. <\/p>\n\n\n\n
2. Production records\nof each process are so designed as would show the quantum of production for each\nperiod. <\/p>\n\n\n\n
3. The total cost of\neach process is divided by the total production by the process for arriving at\nthe unit cost of the article processed. <\/p>\n\n\n\n
4. The cost of any\nnormal spoilage or wastage is included in the cost of the total units produced.\nThereby the average cost per unit is increased. <\/p>\n\n\n\n
5. As the product\ntravels from one process to another, the cumulative cost thereof in respect of\nthe processes it has already undergone is transferred to the account of the\nprocess it has yet to undergo.<\/p>\n\n\n\n
<\/span>ADVANTAGES OF PROCESS COSTING<\/strong><\/span><\/h4>\n\n\n\n 1. Costs are be\ncomputed periodically at the end of a particular period <\/p>\n\n\n\n
2. It is simple and\ninvolves less clerical work that job costing <\/p>\n\n\n\n
3. It is easy to\nallocate the expenses to processes in order to have accurate costs. <\/p>\n\n\n\n
4. Use of standard\ncosting systems in very effective in process costing situations. <\/p>\n\n\n\n
5. Process costing\nhelps in preparation of tender, quotations <\/p>\n\n\n\n
6. Since cost data is\navailable for each process, operation and department, good managerial control\nis <\/p>\n\n\n\n
possible. <\/p>\n\n\n\n
<\/span>LIMITATIONS OF PROCESS COSTING<\/strong><\/span><\/h4>\n\n\n\n 1. Cost obtained at\neach process is only historical cost and are not very useful for effective\ncontrol. <\/p>\n\n\n\n
2. Process costing is\nbased on average cost method, which is not that suitable for performance analysis,\nevaluation and managerial control. <\/p>\n\n\n\n
3. Work-in-progress\nis generally done on estimated basis which leads to inaccuracy in total cost calculations.\n<\/p>\n\n\n\n
4. The computation of\naverage cost is more difficult in those cases where more than one type of products\nis manufactured and a division of the cost element is necessary.<\/p>\n\n\n\n
5. Where different products arise in the same process and\ncommon costs are prorated to various costs units. Such individual products\ncosts may be taken as only approximation and hence not reliable. <\/p>\n\n\n\n
<\/span>ACCOUNTING FOR PROCESS COSTING<\/strong><\/span><\/h4>\n\n\n\nACCOUNTING FOR\nMATERIALS <\/strong><\/p>\n\n\n\nMaterials and supplies as in the case of job costing are\nissued to each process only against authorized requisitions. At the end of each\nprocess or of each costing period, the requisitions are sorted according to processes\nand their values listed on a material summary sheet. On the basis of this\nsummary sheet, a journal entry is passed to debit the various process accounts\nand the material control account is credited. <\/p>\n\n\n\n
ACCOUNTING FOR LABOUR\n<\/strong><\/p>\n\n\n\nIn order to account for labour, the first step is\nidentification of each worker with the process in which he is engaged. If the\nworkers are permanently assigned to the process, such identification would not\npose any problem as the pay rolls would be prepared in a manner so as to show\nthe wages cost of each process separately. In that case all that is required is\nthat the pay roll section be notified of permanent transfers of workers from\none process to another. <\/p>\n\n\n\n
Where it is necessary to frequently transfer workers from\none process to another, it may not be possible to have a permanent\nclassification of workers according to processes. In such a case, it is\nnecessary to prepare daily time reports showing the number of employees engaged\nin each process and, if any worker is required to divide his time among two or\nmore processes, a transfer form would be used to record his times on different\nprocesses. At the end of the week or that of the costing period, the daily time\nreports and transfer forms would be abstracted on a labour summary sheet. On\nthis basis a journal entry would be made, debiting various process accounts and\ncrediting the wages control account. <\/p>\n\n\n\n
ACCOUNTING FOR\nOVERHEADS <\/strong><\/p>\n\n\n\nSince normally it is practicable to identify all materials\nand labour charges with specific processes, the overhead expenses chargeable to\na process ordinarily would not contain cost of indirect materials or labour. <\/p>\n\n\n\n
But there still would be several items of expenses that do\nnot relate to any particular process. It would be necessary to apportion them\nto various processes on suitable bases. Different bases that are generally adopted\nfor making such a distribution are stated below:<\/p>\n\n\n\n\n ITEMS OF EXPENSES<\/strong>\n <\/td>\n BASIS OF DISTRIBUTION <\/strong>\n <\/td><\/tr>\n Rent, rates and taxes\n <\/td> \n Area occupied by each process.\n <\/td><\/tr> \n Power\n <\/td> \n Meter readings or horse power of plant employed for each process.\n <\/td><\/tr> \n Fire insurance\n <\/td> \n Value of asset and the degree of risk involved.\n <\/td><\/tr> \n Water, gas, steam, etc.\n <\/td> \n Meter readings or technical estimates.\n <\/td><\/tr> \n Depreciation of plant\n <\/td> \n Value of assets employed.\n \n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nAmounts of manufacturing overheads are, usually debited in\ntotals to a total overhead account entitled \u2018Manufacturing Overhead Control\nAccount\u2019. From this account, the total amount is distributed to various process\naccounts on the basis of a manufacturing overhead summary sheet. The summary\nsheet contains a description of various items of manufacturing overheads and\nthe manner in which the same has been distributed, i.e. one or other based\nmentioned above. <\/p>\n\n\n\n
An alternative method of distributing the manufacturing\noverhead that could be followed is to apportion the total of the overhead\nexpenses in a lump sum to the process on a blanket base, such as the number of\nunits processed or total labour or operating hours of each process for the\nperiod. Such a lump sum distribution is generally unscientific since the\nfigures are not analytically obtained.<\/p>\n\n\n\n
PROCESS ACCOUNT<\/strong><\/p>\n\n\n\nFor each process an individual process account is prepared.\nEach process of production is treated as a distinct cost centre. <\/p>\n\n\n\n
Items on the Debit\nside of Process Account<\/strong><\/p>\n\n\n\nIn process Costing, individual process Accounts are prepared\nfor each process. Each process account is debited with-<\/p>\n\n\n\n
(a) Cost of materials used in that process. <\/p>\n\n\n\n
(b) Cost of labour incurred in that process. <\/p>\n\n\n\n
(c) Direct expenses incurred in that process. <\/p>\n\n\n\n
(d) Overheads charged to that process on some pre\ndetermined. <\/p>\n\n\n\n
(e) Cost of ratification of normal defectives. <\/p>\n\n\n\n
(f) Cost of abnormal gain (if any arises in that process) <\/p>\n\n\n\n
Items on the Credit\nside of Process Account <\/strong><\/p>\n\n\n\nEach process account is credited with- <\/p>\n\n\n\n
(a) Scrap value of\nNormal Loss (if any) occurs in that process. <\/p>\n\n\n\n
(b) Cost of Abnormal Loss (if any occurs in that process)<\/p>\n\n\n\nCOST OF PROCESS<\/strong><\/p>\n\n\n\n
PROCESS LOSSES<\/strong><\/p>\n\n\n\nIn manufacturing processes, entire input is not getting\nconverted into output. A certain part of input is lost while processing which\nis inevitable. Certain production techniques are of such a nature that some\nloss is inherent to the production. Wastages of material, evaporation of\nmaterial are un- avoidable in some process. But sometimes the Losses are also\noccurring due to negligence of Labourer, poor quality raw material, poor technology\netc. These are normally called as avoidable losses. Basically process losses\nare classified into two categories (a) Normal Loss (b) Abnormal Loss <\/p>\n\n\n\n
Normal Loss: <\/strong><\/li><\/ul>\n\n\n\nNormal loss is an unavoidable loss which occurs due to the\ninherent nature of the materials and production process under normal\nconditions. It is normally estimated on the basis of past experience of the\nindustry. It may be in the form of normal wastage, normal scrap, normal\nspoilage, and normal defectiveness. If the normal loss units can be sold as a\nscrap then the sale value is credited with process account. If some rectification\nis required before the sale of the normal loss, then the cost of rectification\nis debited in the process account. The cost per unit of a process is calculated\nafter adjusting the normal loss. In case of Normal Loss the cost per unit is\ncalculated by the under given formulae. <\/p>\n\n\n\n
Cost of Good Unit = (Total Cost-Sale value of Scrap\/ Input Normal- Loss\nUnits)<\/strong><\/p>\n\n\n\nAbnormal Loss: <\/strong><\/li><\/ul>\n\n\n\nAny loss caused by unexpected abnormal conditions such as\nplant breakdown, substandard material, carelessness, accident etc. such losses\nare in excess of pre-determined normal losses. This loss is basically avoidable.\nThus abnormal losses arrive when actual losses are more than expected losses.\nAbnormal losses in calculated as per under given formulae: <\/p>\n\n\n\n
Value of Abnormal Loss = (Total Cost-Sale value of Scrap\/ Input Normal-\nLoss Units) \u00d7 Units in abnormal loss<\/strong><\/p>\n\n\n\nAbnormal Process loss should not be allowed to affect the\ncost of production as it is caused by abnormal (or) unexpected conditions. Such\nloss representing the cost of materials, labour and overhead charges called abnormal\nloss account. The sales value of the abnormal loss is credited to Abnormal Loss\nAccount and the balance is written off to costing P & L A\/c.<\/p>\n\n\n\n
SPECIMEN: ABNORMAL LOSS ACCOUNT<\/strong><\/p>\n\n\n\n\n PARTICULARS<\/strong>\n <\/td>\n UNITS<\/strong>\n <\/td>\n AMOUNT<\/strong>\n <\/td>\n PARTICULARS<\/strong>\n <\/td>\n UNITS<\/strong>\n <\/td>\n AMOUNT<\/strong>\n <\/td><\/tr>\n To Process A\/c\n <\/td> \n \n <\/td> \n \n <\/td> \n By Bank Account\n <\/td> \n \n <\/td> \n \n <\/td><\/tr> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n By Costing Profit and Loss Account\n <\/td> \n \n <\/td> \n \n <\/td><\/tr> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nABNORMAL GAINS<\/strong><\/p>\n\n\n\nThe margin allowed for normal loss is an estimate (i.e. on\nthe basis of expectation in process industries in normal conditions) and slight\ndifferences are bound to occur between the actual output of a process and that anticipates.\nThis difference may be positive or negative. If it is negative it is called ad\nabnormal Loss and if it is positive it is Abnormal gain i.e. if the actual loss\nis less than the normal loss then it is called as abnormal gain. The value of\nthe abnormal gain calculated in the similar manner of abnormal loss. The\nformula used for abnormal gain is: <\/p>\n\n\n\n
Value of Abnormal\nGain = (Normal cost of normal output x Units of Abnormal gain)\/ Normal output<\/strong><\/p>\n\n\n\nNormal cost of normal\noutput = Total expenditure\u2013 Sale Proceeds of scrap<\/strong><\/p>\n\n\n\nNormal output = Input\n\u2013 Units of normal loss<\/strong><\/p>\n\n\n\nUnits of Abnormal\ngain = Normal loss- Actual loss<\/strong><\/p>\n\n\n\nOr = Actual output –\nNormal output<\/strong><\/p>\n\n\n\nThe sales values of abnormal gain units are transferred to\nNormal Loss Account since it arrive out of the savings of Normal Loss. The\ndifference is transferred to Costing P & L A\/c. as a Real gain. <\/p>\n\n\n\n
SPECIMEN: ABNORMAL GAIN ACCOUNT<\/strong><\/p>\n\n\n\n\n PARTICULARS<\/strong>\n <\/td>\n UNITS<\/strong>\n <\/td>\n AMOUNT<\/strong>\n <\/td>\n PARTICULARS<\/strong>\n <\/td>\n UNITS<\/strong>\n <\/td>\n AMOUNT<\/strong>\n <\/td><\/tr>\n To Normal Loss A\/c\n <\/td> \n \n <\/td> \n \n <\/td> \n By Process Account\n <\/td> \n \n <\/td> \n \n <\/td><\/tr> \n To Costing Profit and Loss Account\n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td><\/tr> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td> \n \n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nEQUIVALENT PRODUCTION<\/strong><\/p>\n\n\n\nThis represents the production of a process in terms of completed units. In other words it means converting the incomplete production units into its equivalent of complete units. In each process an estimate is made of the percentage completion of any work-in-progress. A production schedule and a cost schedule will then be prepared. The work-in-progress is inspected and an estimate is made of the degree of completion, usually on a percentage basis. It is most important that this estimate is as accurate as possible because a mistake at this stage would affects the stock valuation used in the preparation of final accounts. <\/p>\n\n\n\n
<\/span>JOB COSTING<\/strong><\/span><\/h2>\n\n\n\nJob costing or job order costing also called specific order\ncosting is a method of costing which is used when work is undertaken as per the\ncustomer\u2019s special requirement (tailor-made).<\/p>\n\n\n\n
ACCORDING TO\nINSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS, LONDON<\/strong><\/p>\n\n\n\n\u201cJob costing is that form of specific order costing which\napplies where work is undertaken to customer\u2019s specific requirements and each\norder is of comparatively of short duration.\u201d <\/p>\n\n\n\n
Under this method of costing, each job is considered to be a\ndistinct cost unit. As such, each job is separately identifiable. In the case\nof a job, work is usually carried out within the factory or workshop.\nSometimes, a job is accomplished even in the customer\u2019s premises.<\/p>\n\n\n\n
Job costing is employed in the following cases:<\/p>\n\n\n\n
Where the production is against the order of the\ncustomer or jobs are executed for different customers according to their\nspecifications.<\/li> Where each job needs special treatment and no\ntwo orders are necessarily alike.<\/li> Where there is no uniformity in the flow of\nproduction from one department to another.<\/li> Where the work-in-progress differs from period\nto period on the basis of the number of jobs in hand.<\/li><\/ul>\n\n\n\nJob costing is applicable to printing, furniture, hardware,\nship-building, heavy machinery, foundry general engineering works, machine\ntools, interior decoration, repairs and other similar work.<\/p>\n\n\n\n
<\/span>FEATURES<\/strong><\/span><\/h4>\n\n\n\n1. Each job has its own characteristics, depending up on the\nspecial order placed by the customer.<\/p>\n\n\n\n
2. Each job is treated as a cost unit.<\/p>\n\n\n\n
3. A separate job cost sheet is made out for each job on the\nbasis of distinguishing numbers.<\/p>\n\n\n\n
4. A separate work in progress ledger is maintained for each\njob.<\/p>\n\n\n\n
5. The duration of the job is normally a short period.<\/p>\n\n\n\n
6. Profit or loss is determined for each job independently\nof others.<\/p>\n\n\n\n
<\/span>ADVANTAGES OF JOB COSTING<\/strong><\/span><\/h4>\n\n\n\nThe following are the advantages of Job costing:<\/p>\n\n\n\n
HELPS IN PREPARING\nPRICE QUOTATIONS<\/strong><\/p>\n\n\n\nIt helps management to detect which jobs are profitable and\nwhich are not. Estimates of cost for similar work in the future may be\nconveniently made on the basis of accurate record of job costs. This assists in\nthe prompt furnishing of price quotations for specific jobs.<\/p>\n\n\n\n
HELPFUL IN COMPARISON\n<\/strong><\/p>\n\n\n\nThe cost of materials, labour and overhead for every job or\nproduct in a department is available regularly and periodically, enabling the\nmanagement to know the trend of cost and thus by suitable comparison, to\ncontrol the efficiency of operations, materials and machines.<\/p>\n\n\n\n
ASSISTANCE OF\nBUDGETARY CONTROL<\/strong><\/p>\n\n\n\nThe adoption of predetermined overhead rates in job costing\nnecessitates the application of a system of budgetary control of overheads with\nall the advantages. <\/p>\n\n\n\n
IDENTIFY SPOILAGE AND\nWASTAGES<\/strong><\/p>\n\n\n\nSpoilage and defective work can be easily identified with\nspecific jobs or products so that responsibility may be fixed on departments or\nindividuals. <\/p>\n\n\n\n
SUITABILITY<\/strong><\/p>\n\n\n\nJob costing is particularly suitable for cost plus and such\nother contracts where selling price is determined directly on the basis of\ncosts.<\/p>\n\n\n\n
PROMPT RESULTS<\/strong><\/p>\n\n\n\nThe cost of material, labour and overhead for every job or\nproduct in a department is available daily, weekly or as often as required\nwhile the job is still in progress.<\/p>\n\n\n\n
NO DELAY IN COST\nASCERTAINMENT<\/strong><\/p>\n\n\n\nOn completion of a job, the cost under each element is\nimmediately ascertained. Costs may be compared with the selling prices of the\nproducts in order to determine their profitability and to decide which product\nlines should be pushed or discontinued.<\/p>\n\n\n\n
HELPFUL IN PLANNING<\/strong><\/p>\n\n\n\nHistorical costs for past periods for each product, compiled\nby orders, departments, or machines, provide useful statistics for future\nproduction planning and for estimating the costs of similar jobs to be taken up\nin future. This assists in the prompt furnishing of price quotations for specific\njobs.<\/p>\n\n\n\n
ANALYSIS OF VARIANCES\nIN COSTS<\/strong><\/p>\n\n\n\n The actual overhead\ncosts are compared with the overhead applied at predetermined rates; thus, at\nthe end of an accounting period, overhead variances can be analyzed.<\/p>\n\n\n\n
<\/span>OBJECTIVES OF JOB COSTING<\/strong><\/span><\/h4>\n\n\n\nJob costing serves the following objectives :<\/p>\n\n\n\n
1. It helps in finding out the cost of production of every\norder and thus helps in ascertaining profit or loss made out on its execution.\nThe management can judge the profitability of each job and decide its future course\nof action.<\/p>\n\n\n\n
2. It helps management in making more accurate estimates\nabout the costs of similar jobs to be executed in future on the basis of past\nrecords. The management can conveniently and accurately determine and quote prices\nfor orders of a similar nature which are in prospect.<\/p>\n\n\n\n
3. It enables management to control operational inefficiency\nby comparing actual costs with the estimated ones.<\/p>\n\n\n\n
<\/span>REQUISITES OF JOB COSTING SYSTEM<\/strong><\/span><\/h4>\n\n\n\nA sound system of production control<\/li> An effective time booking system<\/li> Clearly defined cost centre<\/li> Appropriate overhead absorption rate, and<\/li> Proper material issue pricing method.<\/li><\/ul>\n\n\n\n<\/span>JOB COSTING PROCEDURE<\/strong><\/span><\/h4>\n\n\n\nThe following is the procedure adopted for costing purposes\nin a concern using job costing:<\/p>\n\n\n\n
Job Number: <\/strong><\/li><\/ol>\n\n\n\n