Related Sponsors

Does Job Costing suffer from any specific disadvantages?

Home » Accounting » Job Costing » Does Job Costing suffer from any specific disadvantages?

As with its advantages, one disadvantage becomes readily apparent after reviewing job costing as an accounting approach. Potentially, at least, job costing offers readily available cost information and flexibility to businesses, but such information and flexibility are highly dependent upon the accuracy of your cost reporting system. The increased flexibility is driven by the constant input and integration of diverse information; information concerning employee labor, inventory movement and general overhead costs. Your job costing system must thus not only provide for constant cost data inputs, but must also allow you or your employees to easily organize and access that information. As a result, the creation of such an accurate job costing system may prove cost prohibitive for certain businesses. Some other potential disadvantages include:

• Ignorance of other costs: An exclusive focus on job-related costs may cause your business to ignore or overlook other costs within your business, such as those costs tied to separate departments or activities that aren’t connected directly to a specific job.

• Necessity of expensive, specialized job costing software: It’s certainly possible that your particular business can establish an accurate, flexible job costing system without using job costing software. However, given the obvious need for highly accurate cost reporting and data integration across the spectrum of each job, it’s likely that you’ll prefer to utilize such software.

• Disgruntled employees: In order to accurately report task-specific costs for labor and inventory, production employees will need to repeatedly clock in and out on specific tasks, rather than just at the beginning and end of the day. Consequently, there’s at least a chance that the extra work won’t be appreciated by some of your employees and, given the need for accurate reporting in a job costing system, you’ll need those very employees to properly report their labor for each and every job.

Next Page: Is Job Costing right for my business?

Related Job Costing Articles