Advantages and Disadvantages of Job Costing

Job costing refers to a costing method under which the various costs such as material and labor cost related to production of a good or services are allocated to a product or service and then the price of that product or service is quoted to a customer. Given below are some of the advantages and disadvantages of job costing –

Advantages of Job Costing

  1. Job order costing offers a detailed analysis in the form of the costs of materials, labor and overheads and therefore it helps the company in allocating overheads at a predetermined rate.
  2. Bit helps the company in determining the profitability of a job, which in turn will help the company in deciding whether to take a particular job or not.
  3. Job order costing facilitates the estimation of the cost of a similar job and therefore it helps the company in avoiding duplication of work because if company has to quote price for a similar job than it can quote it on the basis of previous job costing method.

Disadvantages of Job Costing

  1. Job order costing needs a great deal of clerical work in recording of transactions related to it and therefore many companies tend to avoid this method of costing.
  2. Since overheads are allocated on estimation this method may not yield 100 percent accurate result and may lead to errors while quoting the price for a product or service.

Tags:

Leave a comment