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Job costing and its importance in the service business

Job costing refers to the accounting aspect of a business wherein a track record is kept of all the costs and revenues. These might have generated during a previous “job” or a project. In simpler terms, it involves the pricing of jobs and services. For service businesses, job costing becomes uniquely significant. These businesses face a multitude of pressure and in such scenarios, utilizing their employees’ time ideally becomes necessary. These pressures include lack of labor and resources, increasing competition, time crunch, and foresight to predict market volatility.

The process of job costing involves tracking the project by phases and types, calculating the cost of materials, labor, overhead charges like transportation that must be incorporated. With all of these factors involved, job costing that was estimated could vary. For instance, if the price of raw material goes up, the cost would increase contradictory to the time when the job costing was calculated. 

Importance Of Job Costing

Services businesses which involve law firms, movie studios, medical services, accounting firm, software services, etc. should adopt job costing as a part of their business. With the help of job costing, these service companies can mathematically evaluate the cost and revenue that might be generated in a project from a plethora of projects available, and thus select those which are beneficial and would yield high gross profits. At the same time, it is especially imperative for a small business since these businesses usually cannot afford to take a loss at the very start itself. They must work on projects after putting in a lot of thought. And deciding which project might yield the highest profit.

job costing accounting

For instance, law firms need job costing for the reason that it helps in determining what to charge a client. This will be based on materials used, labor done, and overhead costs. The material requirement is minimal here, the major job costing is due to the direct labor of the lawyer. Also, due to overhead charges like maintaining the office. Similarly, in movie studios, materials need to be procured to set up the set. For the same reason, labor is paid, and transportation charges as well. Thus, in such cases, job costing would be a good alternative. 

It also helps to look back at the previous project from which the businesses might have made a profit and thus, can get an idea of what went right and what went wrong. Based on this analysis, one can use these parameters to decide any future project that one might consider taking. 

Conclusion

Job costing is nothing if not imperative for any business, especially the service business. Thus, if your company does not employ the job costing methodology, then you might be missing out on big bucks. Start doing it today and now!

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