- develop budgets based on product/service unit cost
- determine production volume and human resource needs for a certain project
- establish prices and set sales targets
- control inventory items and associated costs
- opt for the most effective cost control strategies that help you develop high-quality, yet affordable products
- communicate critical data across all departments
- compare actual cost and performance indices with your targets
By simply using job order costing software to complete all these tasks, you can become more efficient, profitable, and competitive than ever before.
Understanding How Costs Flow Through the System
To understand how a job order costing system works, it’s essential to know that everything starts with an initial stage that requires you to record raw materials purchases in the Raw Materials Inventory account. Right after placing raw materials into production, you must register them together with direct labor costs in the Work in Process Inventory account. Indirect materials and indirect labor costs must be recorded in the Manufacturing Overhead account. Once a job is completed, the total cost is transferred to the Finished Goods Inventory account. The jobs delivered to customers must be transferred to the Cost of Goods Sold account.
A great thing about using this system is that it provides detailed information about the costs involved in producing an item, allowing you to analyze how much you actually spent on raw and indirect materials, direct and indirect labor to manufacture a certain product. Having a detailed report that divides expenses into specific categories helps you identify the areas you need to focus on in order to cut costs. As a result, you’ll be able to offer your customers high-quality, and affordable products that out-compete other businesses.
How to Dominate Your Industry Sector
Since numerous companies perform activities that range from pure manufacturing to pure service functions, the latest job order costing systems come along with special features that allow business owners estimate, calculate, divide, and trace costs regardless of what products or services they offer. Some of the most sophisticated systems on the market today are offered by Microsoft: Microsoft Dynamics AX. To understand how a Dynamics AX job order costing system can help you dominate your industry niche, the following paragraphs explain the positive influence of this system on both manufacturing and service sectors.
- Manufacturing: Manufacturing involves putting together raw materials, labor, and overhead to produce a new item. Typically, the degree of uniqueness of a product determines specific needs for unique cost information. In this case, the job order costing software can help you accurately determine the total cost per unit or per batch and the quantity you must produce to achieve a certain profit margin. Being able to verify these aspects before producing an item gives you the opportunity to choose flexible manufacturing strategies without spending money on prototypes that won't bring profit. Knowing exactly what, when, and how much you must produce to meet customer demands can literally help you dominate the market.
- Service: A job order costing system is able to take into account specific features relating to the service sector, including: intangibility – for instance, this system helps you moderate individual client accounts, which are intangible elements, detailing the resources you need to spend to meet your clients’ expectations; heterogeneity – the system is capable to divide the variations that exist among your services, measuring the quality of each service you provide; inseparability – since the production and consumption of a service occurs almost simultaneously, it’s very important to use this software to reevaluate the service quality every time you make a change just to make sure that you’ll achieve the expected results; perishability – as most service benefits expire quickly, using this system can help you keep up with the latest demands, ensuring that your services are created and consumed when and as they're required.
As you can see, this system paired with Microsoft Dynamics AX software utilizes special metrics to gauge your company’s progress and facilitate your operational course so that you can offer your customers high-quality standardized or unique products and services that not only set you apart from the competition, but also help you dominate it.
To learn more about how Microsoft Dynamics AX can boost your production operations utilizing a job order costing system then check out the material below: