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
- 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.
- 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.
- 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
- 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.
- 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.