Three reasons for job costing and traditional product costing methods

1.Differences in the boundaries of overhead

With job costing, product costs are full costs, and all expenses that are reasonable and valid are expenditures that are beneficial to the value of the final enterprise and should be charged to production costs. In this case, period costs are attributed to all unreasonable and ineffective expenditures.

In contrast, overhead under the traditional cost method refers to the cost of manufacturing, which includes only the costs directly and indirectly related to the production of products, while the expenditures for the management and organization of the whole plant production, sales of products and raising funds for production are treated as period expenses.

2, the difference in the accuracy of the information

Operation costing method of allocating overhead with an eye to the source of the expenses, costs, the allocation of overhead costs and the causes of these costs. Diverse allocation criteria (cost drivers) are selected, and the weight of overhead costs allocated according to artificial criteria is minimized, improving the accuracy of cost information.

The main purpose of the traditional costing method is to allocate the manufacturing costs collected by the auxiliary departments to the products in an even and linear manner, without considering the proportion of product consumption and costs in actual production.

3, production management and the difference between quality management

Operation costing method of quality management is a comprehensive quality management, requiring workers in all production processes to take care of their own production, to realize the quality of self-monitoring.

While the traditional cost method under the management of the production system is a kind of production system from the front to push back, production from raw materials into the first production process, and so on, step by step, until the final formation of the finished product, so that the focus of the work on semi-finished products and the quality of the finished product inspection, the problem, it is difficult to repair or eliminate in a timely manner.

Comparative advantages of job costing:

1. Expanding the proportion of directly traced piece costs

Producing a variety of products requires a variety of operations to be completed, from the design of the product, the supply of materials, workshop production to sales and after-sales service. Direct or indirect costs are incurred in different operation centers, and indirect costs are attributed according to cost drivers. By recognizing and measuring the costs of the operation centers, a relatively accurate product cost is finally derived.

2. It is easy to understand the real reason why the cost of a single product is incurred

Job costing focuses the cost control more on the occurrence of the job, the design of the product, rather than the output of the product. While the use of direct labor to allocate manufacturing overhead leads managers to reduce the amount of labor in the product, job costing drives managers to be more concerned with job-centered cost control and to reduce the amount of cost drivers in the product.