Comprehensive Job Costing

Job costing is a method for breaking down a job into its functional tasks, and then identifying the tasks’ associated costs. Job costing allows managers to emphasize moneymaking tasks while eliminating or fixing the money-losing tasks.
Estimating bids on jobs is an important use of job costing tools. Indeed, making a bid without good historical job cost data is merely an exercise in guesswork. Do you enjoy leaving your company profits to guesswork? Job costing is an essential tool for making competitive bids that determine company survival.

One of the major barriers to good job costing is creating a way to collect accurate data. The old saying “Garbage in, garbage out” applies here. TaskKlock is a particularly effective tool because all time and materials data is collected in real time, without guesswork after the job is over.

Another benefit of job costing is that managers can use the job cost data as an employee performance measurement tool. Managers can link their bonuses to whether an employee’s performance on a specific task is profitable. Both the employee and manager can review the data objectively, without introducing subjective information or personalities.

Job costing is a popular method of activity-based costing (ABC). Traditionally cost accountants had arbitrarily added a broad percentage of expenses onto the direct costs to allow for the indirect costs. Financial accounting techniques were unable, however, to accurately identify whether an individual product or job was profitable. The rise of activity based costing grew out of this need for better information on the shop floor.

However as the percentages of indirect or overhead costs had risen, this technique became increasingly inaccurate because the indirect costs were not caused equally by all the products. For example, one product might take more time in one expensive machine than another product, but since the amount of direct labor and materials might be the same, the additional cost for the use of the machine would not be recognized when the same broad 'on-cost' percentage is added to all products. Consequently, when multiple products share common costs, there is a danger of one product subsidizing another.

The concepts of ABC were developed in the manufacturing sector of the United States during the 1970s and 1980s. During this time, the Consortium for Advanced Manufacturing-International, now known simply as CAM-I, provided a formative role for studying and formalizing the principles that have become more formally known as Activity-Based Costing.[1]