Will Job Order Costing Assist Managers? This question may be in the mind of the info seeker. Most managers are focused in controlling costs in each department and job. Direct material, direct labor, and factory overhead are accumulated in departmental accounts and are periodically compared to budgets so that managers can respond to significant variance. Transactions must be recorded in a consistent, complete, and accurate manner to have information on actual costs available for periodic comparisons. Managers may drive different types of cost control in different types of businesses.
The main difference in job order costing for a service organization and a manufacturing company is that most service organizations use an insignificant amount of materials relative to the value of labor for each job. In such cases, direct material may be treated as part of overhead rather than accounted for separately. A few service organizations, such as in the medical industry, may use some costly materials.
Some accountants in some service companies may trace only direct labor to jobs and allocate all other manufacturing costs. These cost allocations may be accomplished most effectively by applying a predetermined rate per hour, or per direct labor currency. Other cost drivers may also be used as possible overhead allocation bases. Knowing the costs of individual jobs allows managers to prudently estimate future job costs and establish realistic bids and selling prices. The use of budgets and standards in a job order costing system provides information against which actual costs can be compared at regular time intervals for control purposes. These comparisons can also furnish some performance evaluation information.
The main difference in job order costing for a service organization and a manufacturing company is that most service organizations use an insignificant amount of materials relative to the value of labor for each job. In such cases, direct material may be treated as part of overhead rather than accounted for separately. A few service organizations, such as in the medical industry, may use some costly materials.
Some accountants in some service companies may trace only direct labor to jobs and allocate all other manufacturing costs. These cost allocations may be accomplished most effectively by applying a predetermined rate per hour, or per direct labor currency. Other cost drivers may also be used as possible overhead allocation bases. Knowing the costs of individual jobs allows managers to prudently estimate future job costs and establish realistic bids and selling prices. The use of budgets and standards in a job order costing system provides information against which actual costs can be compared at regular time intervals for control purposes. These comparisons can also furnish some performance evaluation information.
Will Job Order Costing Assist Managers?
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