All internal job costing systems are made up of a series of interrelated components that are fundamental to the accuracy and timeliness of the job costing model. We have seen numerous costing systems in our experience advising clients as to software and procedural changes related to job costing. However, each of those systems, no matter how different they might seem and no matter how automated or manual they were, all have certain features that are fundamental to the accuracy and timing of the system. If you are working with a system today that does not include one or more of these components and is functioning fine, I would like to hear about it. Our experience has been that for those individuals that do not meet all of these five criteria, they have a significant deficit in their accuracy or timeliness. Sometimes the issues are buried below the surface, but nevertheless exist and are problematic, specifically related to their overall management reporting system. Each of these steps is critical to the operation of the process and in some cases where you have a fully automated system. These steps may be invisible to the operators but are being performed behind-the-scenes at the part of an ongoing process in the software. However, they are not obvious to the cost accountant unless they happen to be looking for these results and the behind-the-scenes processes that make them work. I will write about each step separately and in more detail in my future blog posts, for now the following are the five steps:
- development of the numbers
- development of the segregation of costs to be recovered
- determine how cost were to be apportioned or allocated
- reporting to management the results of the job costing process and
- finally reconciliation of the job costing system to the general ledger process
These steps may be called different names as part of the software package or perhaps even as a result of manual processes completed by the cost accountant’s managing these systems. Just be aware of them, as we have seen manual systems or excel based systems that omit one or more of these processes and those systems are flawed due to that omission.
Look for my future blog posts that will be part of the series where we will deal with each of the steps and provide a quick overview as to how that step should work and what problems we have seen by individuals who attempt to circumvent one or more steps either by failure to recognize its importance or attempting to save time by eliminating part of the processes.