Quoting and the advantages of using a job order costing system
Job costing is an order specific costing technique used where each job is different and individually tailored to the customer’s requirements. Job costing involves allocating direct and indirect costs to each job.
Job costing is the process of determining the labour and materials cost for each job in a systematic way, and then using this information to create a quote for the customer. Job costing or cost accounting can be used in virtually any industry (especially the service industry) to ensure that the product pricing covers actual costs, overheads and provides a profit.
The advantages of having a job order costing system include:
- Improved profitability – The profit margin on each individual job is calculated so you can focus on the more profitable jobs, type of work, or clients.
- Improved performance – It assists in evaluating individual employee performance including productivity, efficiency, and cost-control.
- Continual monitoring – This allows you to identify potential issues and make corrections to avoid catastrophic situations, such as producing defective items or going over budget.
- Enhanced estimating for future projects – When the actual costs for a job are accurately detailed this information is useful for quoting for future similar jobs.
Job costing software improves cost control, reduces risk, and increases the chance of profitability. In a true job cost accounting system, a budget is set up in advance of the job. As actual costs are accrued, they are compared to budgeted costs, to determine variances for each phase of each job.