Relationship Banking in Commercial Banking
Commercial banking is fundamentally different from retail banking in several ways. One of the main differences between the two types of banking is the relationship management approach. The commercial banking system relies heavily on relationship management. Each and every corporate customer of a commercial bank has a dedicated relationship manager. This is possible because of […]
How Co-Founders Split Their Equity?
Beginning a startup can be quite an overwhelming process. This is because of the fact that founders need to make many significant decisions. They need to decide the markets which they intend to serve. Also, the product mix needs to be decided. It is also important that a company chooses its financing and investors carefully. […]
Benefits and Drawbacks of Straight-Through Processing
In the previous article, we have already seen what straight-through processing is and how it is different from the usual commercial lending processes adopted by commercial banks. We now know that straight-through processing is a futuristic technology-based business model which all commercial banks are working towards. Right now, the model is not used in many […]
Start-ups and Arbitration
Entrepreneurs who start up new companies have to deal with a lot of different types of stakeholders. As a result, they have to enter into a wide variety of agreements with these different stakeholders. Over the course of time, it is possible that the entrepreneur and an external party may not agree on some of […]
Involvement of the Franchisor in Debt Funding
In the previous article, we have already seen that it is common for sporting franchises to raise significant amounts of debt funding. We also know that there are certain special characteristics of sports franchises that need to be taken into account before giving out loans to them. One more such important characteristic of debt funding […]
Law firms all across the world practice job costing. Most law firms charge an hourly rate to their clients. This rate is derived on the basis of the same factors direct material, direct labour as well as overheads. In case of law firms, the direct material used is negligible. The majority of the hourly rate signifies the expenses that have to be paid as salaries to the employee lawyers. The overheads required for maintaining the office and shared facilities is split amongst clients based on an estimated overhead.
Movie studios like Walt Disney also follow job costing. Every movie that they produce is a specific job. They allocate costs based on the material and labour that has spent while creating the movie. The tough part is to apportion the cost of equipment, studios and other such shared facilities amongst the various jobs that are being performed i.e. the movies that are being produced.
The cost of Medicare has been a major concern all over the world, of late. This has prompted many hospitals to have a closer look at their costs. Most medical service providers are using job costing to do so. A rational allocation of costs is the only way that costs can be brought down for certain ailments. Proper apportioning of costs ensures that people who common in for medication for common flu do not have to pay for the overheads incurred as a result of having equipment for major diseases like cardiac arrests, strokes, kidney failure etc.
The big 4 accounting firms have always used job costing to bill their clients. Their model is very similar to that of the law firms. With accountants too, the cost of material is negligible. Labour costs can be ascertained fairly easily. The real difficulty is to apportion the overheads amongst varios clients.
Companies that build custom software for clients also use job order costing systems. Most accept a fixed rate project, while some clients insist on time and material. However, the majority of expenditure in a software firm is overheads. These need to be apportioned fairly amongst the different clients.
Service firms have led to the development of job costing procedures. Earlier materials were the major component of costs and could be easily tracked. However, keeping a track of the amount of labour spent on different jobs and their productivity has been the result of the efforts of service firms. Some of their methods and procedures have been adopted by the manufacturing sector too. This has led to increased productivity.
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