Many small business owners rely on basic accounting software to determine whether the company is making profits. In order for this method of tracking profitability to work however, labor, material, and overhead costs need to be calculated; this is where job costing software comes in.
Unlike basic accounting software or process costing, job costing software allows you to calculate the exact cost of the item to be manufactured. Knowing this information is critical to evaluating an item's profitability and determining whether it should be produced.
Despite the prevalence of job costing software, there is still a large number of companies that have not yet upgraded from a basic accounting software to a more sophisticated job costing system. In this article, we'll take a look at a few reasons to consider switching from a generic accounting program to an efficient, cost-effective job costing system.
Using job costing software allows you to direct costs separately to different operations and determine the profit margin on each job. This is a great way to evaluate each operation's profitability in producing a given item. While this feature is particularly useful for businesses that handle custom orders, it can also be used by companies wanting to get detailed statistics on individual operations.
Based on a pre-determined set of criteria, job costing software assigns different types of costs to different accounts. For example, the system may be set up to automatically combine marketing and selling costs, which are irregular expenses, under the statement of income instead of the overhead account.
With job costing software, you can evaluate the performance of your employees in terms of efficiency, productivity, and cost control. Job costing systems also help you identify employees who are not performing to your standards. Unlike process costing, which measures the performance of an entire work team or department, job costing software provides specific data about individual workers, helping you identify employees who are not performing to your standards.
Job costing software allows you to track the manufacturing process from start to finish, so you can respond quickly to potential problems and make adjustments to avoid costly errors, such as manufacturing defective products or exceeding the budget for the project.
The above are just a few of the many great reasons to implement a job costing solution in your company. Whether used alone or in conjunction with a basic accounting system, job costing software offers a smart, simple way to ensure maximum profitability for your business.