Q – Please read the discussion below and prepare a Reply to this discussion post withcomments that further and advance the discussion topic.
Please provide the references you used.
Ensure zero plagiarism.
Word limit: 50 to 70 words please do not exceed the limit.
Discussion
Job Order Cost
Business Identification
The service enterprise that will effectively use a job order costing system is a
software development company that uses a make-to-order business strategy. The
company develops different software, tailoring them to customers’ specifications. In
this case, using job order costing means the company treats each customer order as
a distinct job (Gao, 2021). During the beginning of the development process, all
expenses related to tools, development, personnel, and other types of resources will
be traced for that task. Direct expenses, such as personnel salaries, are directly
associated with the project and thus straightforward. At the same time, the indirect
costs, including office utilities and rent, are distributed based on aspects such as
project duration and the number of employees allocated to execute the project.
Paybacks of utilizing Job Order Costing
Job order costing offers numerous benefits to the company, including enhancing
accurate cost allocation by providing specific cost information for every customer
order, improving profit margin evaluation, and proper pricing. This ensures the
company sets a selling price to cover all necessary costs and return sustainable
profits. Another benefit is that job order costing guides the software development
company in profitability analysis, enabling the company to accumulate project costs
on a per-job basis and identify the type of software that will generate higher profits
(Eydman, 2019). It also allows the company to decide on the kind of projects that will
be in demand and thus plan accordingly. Next is that the company can sustainably
allocate resources effectively by performing detailed analysis of the jobs that need
more labor and attract high overhead costs, allowing for better management of
capacity and resource planning. Moreover, job order costing provides the company
with a clear cost breakdown of every customer order to facilitate decision-making.
For example, the software company can assess whether it should invest in new
equipment depending on the expected profitability promised by future jobs.
Account used
The primary account used during the job order cost system is the “work in process”
account, which accumulates the production cost by acting as an intermediary
between finished goods and raw materials. As labor, materials, and overhead costs
get through production, they will be debited into the work-in-process account. Upon
project completion, the total costs will be transferred from work in process account to
the “finished goods” account, and the cost of the completed tasks will be totaled and
sold.
Therefore, the company must assign costs to precise jobs to ensure they are pricing
its services appropriately to cover the different expenses and attain their targets.
Using job order costing will also assist in recognizing opportunities for cost
reductions and making informed decisions surrounding resource allocation and
production ability planning. The organization will also be able to maintain updated
records of overhead, labor, and material costs as well as job cost sheers to gain
clear insights about the current status of every job. In conclusion, job order costing
offers valuable insights into the unique nature of services and costs attributed to
each service, enabling effective decision-making by organizational leaders.
References
Eydman, M. (2019). Comparison of Job Order and Process Costing.
ResearchGate. https://www.researchgate.net/publication/337012785_Comparison_o
f_Job_Order_and_Process_Costing
Gao, X. (2021, March). Research on the calculation and improvement of a
company’s activity cost based on activity-based costing and industrial engineering
method. In Journal of Physics: Conference Series (Vol. 1827, No. 1, p. 012113). IOP
Publishing.
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