## Core Theory of Job Costing
### Principles / Objectives
| Principle | Meaning |
|---|---|
| Cost ascertainment | Analyse and ascertain the cost of each unit/job of production. |
| Cost control | Control and regulate costs. |
| Profitability | Determine the profitability of the business (job-wise). |
| Applicable industries | Printing, furniture, hardware, ship-building, heavy machinery, interior decoration, repairs. |
### Process of Job Costing
1. Prepare a cost sheet — a separate cost sheet for each job.
2. Cost of materials — disclose materials issued for the job.
3. Employee costs — recorded from the bill of material and time cards.
4. Add overhead charges — on completion, add overheads to arrive at total expenditure.
### Suitability
Job costing suits a business where:
- Jobs are carried out for different customers to their specifications;
- Each order is unique and needs special treatment;
- Work-in-progress changes over time depending on the number of jobs handled.
### Advantages vs Disadvantages
| Advantages | Disadvantages |
|---|---|
| Cost details available for each job | Costly and labour-intensive method |
| Profitability of each job known | Clerical processes → higher chance of error |
| Facilitates production planning | Not suitable in inflationary conditions |
| Aids budgetary control & standard costing | Previous cost records become irrelevant as market conditions change |
| Identifies spoilage and defects |
### Job Costing vs Process Costing
| Job Costing | Process Costing |
|---|---|
| Job-based production (specific orders) | Continuous flow of homogeneous products |
| Costs determined per job | Costs compiled per period for each process/department |
| Jobs are independent and unique | Products lose individual identity in continuous production |
| Cost collected against a job number | Unit cost is an average cost for the period |
| Cost computed after job completion | Cost = total cost ÷ output, at period end |
| Requires more managerial attention | Standardised production → control is easier and more stable |