Management Notes

Reference Notes for Management

A job cost sheet shows information about each of the following items except:

A job cost sheet shows information about each of the following items except:

A) The direct labor costs assigned to the job.
B) The name of the customer.
C) The costs incurred by the marketing department in selling the job.
D) The overhead costs assigned to the job.
E) The direct materials costs assigned to the job.

The Correct Answer for the given question is Option C) The costs incurred by the marketing department in selling the job.

Job Cost Sheet

Job cost sheets are compiled summaries of actual job costs. Accounting compiles the report and distributes it to the management team for review, in order to determine if a job was correctly bid. As a rule, the sheet is compiled after a job has been closed, though it can be compiled concurrently. Job cost sheets can be quite complicated to create, since they sometimes include separate rates for dozens of people, in addition to a labor allocation for payroll taxes, benefits, and overtime incurred by those people, as well as potentially hundreds of component costs, including the cost of shipping and handling. It may also include subtotals of materials, direct labor, and allocated overhead, depending on the format of the job cost sheet. By subtracting all compiled costs from the total of all billings to the customer, this sheet calculates the final profit or loss on the job.

As a general rule, job cost sheets are developed using an electronic spreadsheet, using a standard template that reminds the cost accountant what items to include in each row. These tasks can be performed by software packages that automatically fill in some fields during compilation.

How to Calculate Job Costing

  • Calculate Labor Costs

Estimate the cost of employing all the employees who will be working on the project per day. The payroll day rate will be multiplied by the amount of time you expect to spend on the job. You should include the costs of subcontractors in your labor estimate if you won’t be doing the work yourself. Asking each of these contractors for an estimate can be helpful.
  • Calculate Material Costs

Estimate the cost of all materials used on the job. Typical materials for a construction business would include lumber, wiring, screws, etc. These materials may have a margin added to cover other costs, such as wastage or delivery fees.
  • Estimate Applied Overhead

In order to calculate overhead, you’ll have to rely on an approximation rather than an exact figure. It is necessary to estimate overhead costs relating to the project, such as office rent, administrative fees and depreciation on the equipment used. Many companies charge blanket overhead fees for each job, such as 10 percent. You can develop a specific approach to overhead with the help of an accountant. Alternatively, you can determine your predetermined overhead rate.
This is how job costing is calculated:
Total Job Cost = Direct Materials + Direct Labor + Applied Overhead

Advantages of  Job Costing

  • It is possible to determine the costs at any stage of the project. By taking appropriate steps, the costs can be controlled.
  • Job costing separates the profit earned from each job.
  • In job costing, each element of the cost, selling price, and profit can be compared with the estimates for the purpose of cost control and reduction.
  • Based on past job costing records, management can estimate the cost of a job.
  • A comparison can be made between the costs of previous jobs and the present job.
  • Budgets can serve as the basis for determining the overhead recovery rates.
  • A trend analysis can be prepared by compiling historical costs in job costing.
  • There is no overrecovery or underrecovery of overheads.
  • A budget control system is implemented since estimating is followed in job costing.
  • The spoilage and defects generated by each job can be easily found, and they can be easily controlled.
  • Cost plus contracts are ideal for job costing.
  • Pricing each job is easier with job costing.
  • Predetermined costs are compared to actual costs. This will enable action to be taken to control excessive overhead.
  • With Government contracts, a certain percentage of profit is added to the estimated cost and price of the job is agreed.

Disadvantages of  Job Costing

  • The job is not standardized in Job Costing. Close supervision is therefore necessary.
  • Maintaining detailed job cost information requires more clerical work.
  • This is an expensive process.
  • Because control steps are taken only after incurring expenses in job costing, there is no way to control costs.
  • Due to the fact that a large number of small jobs are carried out simultaneously in job costing, it is not possible to obtain accurate information about cost.
  • Jobs are priced according to market conditions, not past performance.
  • Cost comparisons become meaningless during inflationary times.
  • In case the actual profit is lower than estimated in job costing, no corrective action can be taken.

In a job-order costing system, indirect labor cost is usually recorded as a debit to:

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