Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 1

Job Costing in a Printing Company

Quality Printing Company has succeeded on the competitive knowledge of the manager, Jim Bernard, and on his ability to effectively manage operations. But the costing system stands in the way of Jim’s further progress to profitability. The first problem with the costing system is that it uses a plantwide rate. The BHR system uses a rate derived from all the firms equipment and facilities. Since some print jobs are more complex (more colors, etc.) and must run on more expensive equipment while others are relatively simple, QPC needs overhead rates for each piece of equipment. The National Association for Printing Leadership (NAPL) publishes hourly cost rates (BHRs) for different types of machines, and these rates are updated twice a year. Using the NAPL rates would give Jim a more accurate basis for job costing; it is very much like the departmental approach mentioned in the chapter, except in this case the department is the printing machine.

Other issues Jim should consider in his analysis of customer profitability is that the customers who demand very quick turnaround are likely to increase operating costs by incurring overtime charges, delaying or interrupting other jobs, and in other ways. These additional costs should be considered in pricing these expedited jobs.

Jim can use job costing to measure the profitability of each job and, by extension, of each customer. This information can help him set prices and manage costs.

Step 1 of 3

Costing is process of accumulating different cost under head of direct labor, direct material and factory overhead for the goods or service produced. Job costing system is a system where costs are accumulated and then are allocated to certain project, job, customer, etc.