Job order costing is a system for determining the cost of individual products, perhaps within a larger manufacturing job. It is an efficient way to forecast actual expenses for materials, labor, and overhead before production. Armed with a job cost, you can determine the advisability of producing that particular item. Having these facts can allow you to decide if the item is profitable for your business to produce or perhaps if the customer you are making it for generates revenue for you or not.
Job order costing goes beyond process costing to:
- Enable accurate reporting on individual products
- Illuminate employee performance
- Measure indirect costs
- Monitor costs throughout the manufacturing process.
Here are 7 benefits of implementing a job costing system for your manufacturing business:
1. Profitability
A job costing system lets your team calculate the costs of individual operations so you can ascertain the profit margin of each job. With the data in hand, you can choose which jobs will be more profitable or which manner of production will be most efficient. Job Costing is particularly valuable for companies that care for custom orders, but it can benefit any manufacturer that needs detailed information about individual manufacturing operations.
2. Employee performance
A job costing system allows managers to assess the performance of their workers. Process costing shows the output of an entire department or shift and is used primary in companies that mass produce finished goods in a large volume. After adding up the cost of all the steps in the process, production or costing divide the total cost by the number of items produced. This is called the cost per unit. Alternatively, job order costing zeroes in on specific individuals to assess their productivity and performance. You'll be able to tell which employees are top producers and which fall short of performance expectations.
3. Insight
A job order costing system outlines the expenses associated with each job and each project phase within the manufacturing process. You'll be able to check job costs individually, identify all the items included, and understand the project's overall cost. Based on your findings, you can develop specific strategies to control costs better in the future.
4. Adaptability
A robust job order costing system will have the dexterity to let you also determine indirect costs, such as manufacturing overhead. These costs have been notoriously difficult to calculate without an ERP system. You must take into account various components and items such as salaries and equipment maintenance.
A complex algorithm in the job order costing system will track all the costs involved in manufacturing overhead and transform a complex calculation assignment into a simple, straightforward operation.
5. Accuracy
A sound job order costing system is also accurate. Synchronized according to your criteria, it can direct specific costs toward appropriate accounts. For instance, you can group period expenses, such as sales and marketing costs, under the income statement instead of the manufacturing overhead account.
6. Scalability
Your job order costing solution is highly scalable. You can set up the system to match a variety of processes, from simple tasks to complex operations. Whether yours is a small company or a larger corporation, a job order costing system will benefit you now and will grow with your business.
7. Continuous monitoring
Job order costing allows you to monitor your entire production process. The data generated alerts you to potential issues so you can correct them even mid-production.
Regardless of your industry, a job order costing system will benefit your business now and as you move toward your goals.
Microsoft Dynamics 365 F&O will make job order costing a less arduous task. Unlike old-fashioned spreadsheets, job order costing software can calculate the cost of goods manufactured, the direct cost of materials, the manufacturing cost, and indirect overhead costs.
Clients First Business Solutions is a Microsoft Dynamics and Acumatica Gold ERP Partner . Our team of tenured specialists has core competencies in implementing and supporting Microsoft Dynamics 365 Finance and Supply Chain, Business Central and Acumatica for Manufacturers. To explore all the capabilities of these ERP solutions and find out how they can help your manufacturing or MRO organization achieve its full potential, contact our experts at Clients First Business Solutions.
