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What advantages does Job Costing offer as a cost-allocation system?

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Particularly if your business operates within a task-centered industry, job costing has several potential advantages as an accounting technique. Perhaps the most noticeable of those benefits is the clear link between your accounting system and the reality of your day-to-day job costs. If, for example, your standard cost system utilizes departmental costing, you may frequently discover that the costs allocated to various departments aren’t commensurate with the actual costs of the jobs performed by those departments. In contrast, if your company establishes a workable job costing system, your costs should actually reflect the money you’ve spent on labor, overhead and materials. Other advantages:

• Precise time records: Assuming that your job costing system and software properly integrates your labor clock-ins with specific tasks for each job, you’ll know exactly how much time each task took during the completion of a specific job. Not only does that knowledge give you greater comfort about the allocation of costs for that job, it also allows you to predict future costs for similar jobs with greater clarity.

• Easier cost-data classification: In many types of costing systems, categorizing the cost data you collect is often difficult. Even if you’re careful about the way you organize and review your departmental costs, for example, it may prove difficult to sort through that data in order to arrive at actual costs. However, sound job costing systems break cost data into manageable, organized chunks during the job process itself, so processing specific cost data about overhead or labor should prove easier.

• Immediate cost availability: Many cost accounting systems make it difficult for businesses to monitor their costs during the actual work process. Costs are available for review at the completion of a task or financial period, but not during the task, which means that it’s hard for businesses to make on-the-fly changes during production. In contrast, job costing programs continually track costs during the work process, so that material is readily available for review.

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