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Implementing Job Order Costing in Small Businesses



Job Order Costing for Small Business – Overview

Job order costing is a kind of costing method used to calculate the cost of producing unique goods and/or services. It can be especially useful for small businesses who cater to a niche market through custom-produced goods.


Not only is job order costing a great way to determine the profit for each job but it can also be used to track the cost of materials and equipment, as well as worker salaries.


How to implement job order costing in your small business


The steps to implement job order costing are relatively simple:


Let’s start with identifying cost objects. You want to determine what you need to measure costs for. For example, you might measure costs for a product or service, or a contract or project.


Next, we must accumulate our direct costs. Therefore, track and record the costs of both materials as well as labour that’s utilised in each job.


Accumulate indirect costs. The next step involves accumulating our indirect costs and this is also referred to as overhead costs. These typically include utilities, rent, administrative expenses, and equipment/asset depreciation.


Now, we need to assign indirect costs to our cost objects. It’s best to use a predetermined overhead rate in order to allocate indirect costs to each respective job.


Finally, we will compute our total job costs. So, go ahead and add the direct labour and materials, as well as the allocated overhead costs for each respective job.


As we can see from the above steps, implementing job order costing in a small business is not complicated at all and actually has a number of benefits.


Benefits of job order costing for small business


Job order costing can be particularly beneficial to small businesses as it can aid them in making better decisions through more accurate cost information. Not only that, but it can also help them boost profitability and curb costs.


Here are more benefits of job order costing for small businesses in particular:


Accurate cost estimation and cost control – Job order costing can help you estimate costs for each job in a simple yet accurate way, thus, helping you set competitive prices. It can also help you identify and fix any cost variances.


Improved profitability – Job order costing can help you assess the profitability of a variety of jobs, projects, and clients, potentially giving you a competitive edge.


Performance evaluation – Job order costing can also help you evaluate the performance of jobs, departments, and employees within your business.


Resource allocation – Allocate resources more strategically which, in turn, can boost revenues.


Machine utilisation – Monitor how much you are using your machines, equipment, or fixed assets like manufacturing equipment, for example, which ensures that you are neither under utilising nor over utilising your key business assets.


Conclusion on job order costing for small businesses


Job order costing is commonly used by small businesses manufacturing customised goods or offering specialised services. It’s a great way to track things and gain a competitive edge.


In addition, Pro Bookkeeper can also help you stay on top of your small business affairs. Find out more now!

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