Job costing
The
most simple costing technique is known as `job costing'. As its name implies,
it relates to a unique operation, such as replacing a part or carrying out a
modification to a product. Typical operations in which job costing is commonly
used include:
- supplying a unique
or 'one-off' item
- modifying a product
in order to improve its performance
- adapting a product
to meet a particular customer's requirements
- providing a service
that is only required on an intermittent or irregular basis.
Job
costing involves estimating the cost of materials used (sometimes referred to
as a bill of materials) and then adding this to the cost of labour in
order to determine the total amount that will be charged to the customer. Let
us take an example:
A
small company supplies and fits entertainment systems for use in coaches and
buses. The company has been asked to supply a one off entertainment system for
use in a luxury coach. The quotation for parts and materials required for this
job is as follows:
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