Question

4. explain why "job costing" techniques are useful in decision making. (8 marks)

Answer 1

Let us assume a situation.

Assume there is a company that makes all kinds of furniture - tables, chairs, shelves, wardrobe, beds etc etc. The company is not doing as well as the owner though it is. The company makes a very uniques table that is sold at a markup of 50% of total production costs.

But when they analyze the income statement based on the above data, things do not add up. This hints towards the possibility that the costs are not being identified correctly.

This is where JOB COSTING comes into the picture.

Job costing helps in identifying the revenues and the costs for unique products. Each such table can be distinguished from the other.

Job costing can do more than just tracking the costs. It can also be used to track the profits from each and every job. It comes very handy at the time of decision making. In order to decide whether a job is profitable or not job costing can give an idea. Based on this the job can be undertaken or given up.

Job costing can also be used identify the areas of concern by comparing the estimates with the actual completed sheet.