What Is Job Costing in Management Accounting?
Management accounting is the business function responsible for recording a company's internal financial information. This information is often used by business managers to make decisions regarding the company's operations. An important part of management accounting is the allocation of business costs to goods or services produced by a company. Management accountants may use a variety of costing techniques to apply these costs to the company's products.
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Facts
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Job costing is the cost allocation method used by companies producing large or unique products. Goods produced in a job costing environment usually have specific documents indicating how much economic resources or business inputs are used for each item produced. Industries using a job costing function may include construction, major manufacturers, entertainment or shipping industries. Service industries may also use a job costing method. Service companies will quote clients a specific price for various services.
Features
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Managerial job costing is concerned with allocating three main types of business costs: materials, labor and manufacturing overhead. Materials costs are any physical economic resources used to produce goods or services. Labor is the human capital companies use to transform the physical economic resources into valuable consumer goods. Human capital is also used to complete various business services for consumers. Manufacturing overhead often includes the indirect items used to produce goods. Indirect items often include utilities, maintenance costs and minor business materials.
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Functions
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Companies use job costing to accurately track how much materials are used to produce goods or services. The allocation of business costs directly affects the gross profit of the company. The ability to accurately track costs and determine the price of economic resources or inputs used to produce goods can help companies determine if the company is spending too much capital when producing goods. Overpaying for economic resources can also impact the company's profitability.
Considerations
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Management accountants may use accounting software for their job-costing allocation process. Business technology allows the companies in class to electronically transmit information from the production department in the accounting department. This electronic transfer ensures management accountants have the most accurate and up-to-date information for allocating job costs. Accounting software can also help management accountants accurately track business costs for numerous projects at one time.
Misconceptions
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Management accounting functions are not required to conform with national accounting standards. This allows companies to develop costing methods and internal management reports specific to their business operations. Managers can request specific reports relating to the number of projects an allocation of economic resources for each product and how management accountants will allocate these costs. This information may also be carried for been used to determine the budget for business projects.
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