What Are Derivatives ?
If you are connected to any kind of financial market or watch the financial news even for 5 minutes every day, it is likely that you have heard the word, financial derivatives many times. The media is flush with articles wherein derivatives are criticized or appreciated. Most of the times, commentators are in awe of […]
Data Analytics in Commercial Banking
Commercial banking has traditionally been a relationship-driven business. This meant that the business was primarily driven by human-to-human contact. Over the years, banks have acquired the capability to store large quantities of data and then mine the data in order to discover meaningful trends. There are many modern software tools that allow banks to use […]
How a Cram Up Works in Bankruptcy?
In most bankruptcy cases, senior classes of creditors have more power as compared to junior classes of creditors. This means that the re-organization plans are generally meant to satisfy the needs of senior classes of creditors. However, there are some cases in which companies give importance to the needs of junior stakeholders as well. There […]
Portfolio Revision – Meaning, its Need and Strategies
What is a Portfolio ? A combination of various investment products like bonds, shares, securities, mutual funds and so on is called a portfolio. In the current scenario, individuals hire well trained and experienced portfolio managers who as per the client’s risk taking capability combine various investment products and create a customized portfolio for guaranteed […]
Types of Pension Fund Regulation
Pension funds are one of the most regulated financial investment vehicles in the world. Pension funds all over the world are subject to various types of restrictions. These restrictions affect every part of the pension funds’ operations. The governance mechanisms have to rigorously be followed while funds are being taken in, invested, accounted for, and […]
Job order costing is the only way that companies can appraise the jobs that they are about to take up. In the absence of a job order costing system, companies will not have enough data to ascertain whether or not the job will be profitable.
Job order costing system enables a company to make reliable estimates about the monetary values of materials, labor and overheads that will be spent while performing a job. A more efficient job order costing system enables companies to make quotes that are low enough to be competitive and high enough to be profitable.
Over a period of time, a job order costing system becomes a valuable database. This is because there are thousands of jobs that get stored in the system. These jobs can be used by companies as empirical data. This data can be used in multiple ways. One way is related to quotations as listed in the point above. Another use is when companies can conduct in depth analysis into their own efficiency. A job order costing system provides the data that is required to conduct the analysis by product or by function and aids significantly in decision making.
Companies can use the job order costing system to find the jobs that they are competitive at and the ones that they are not. This system helps conduct in depth analysis such as cost of materials and even the cost of scrap and rework that has been done in the specific job. This cost information helps the company financially. But it also helps the company to streamline its operations.
From the costs of scrap and rework, the causes of scrap and rework can be narrowed down and even eliminated. While implementing measures like six sigma and lean manufacturing many companies use the data collected as a result of job order costing.
Job order costing also helps the company identify use its fixed assets appropriately. Since the cost of machinery is allocated amongst different jobs, accurate identification of the cost incurred for those jobs is possible. In the absence of job order costing, it would be impossible to identify the manufacturing overheads associated with particular jobs as well as allocate these costs amongst different jobs.
In conclusion, the benefits mentioned above can only be realized if the system is implemented correctly. Job order costing system can be fairly difficult to maintain, but there are tremendous financial incentives for companies to do so.
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