Explore BrainMass

Job costing: Does this supersede financial statements?

If you ran a job orientated business, carpet layer, home builder etc. and you implemented a rock solid job costing system in place. Let's say your goal is to have a 30% profit on all jobs and this includes allocating overhead. You check your report job costing reports daily to make sure all jobs are on track and you successfully hit your target of 30% profit on all jobs.

Certainly we will print and review are Income Statement and Balance Sheet but does the costing information supersede these reports? Please explain, additional example and references are helpful.

Solution Preview

Does the job costing information supersede the financial statements?

If you are a manager and you review the job costs and are satisfied that all the jobs meet the profit mark-up, you know that your gross margin is on target. And this is critical because that is the source of operating profits. Think about the income statement....starts with Sales and then deducts cost of goods sold to get gross profit. What comes after gross profit? More expenses! So, if you don't make the profit at the gross profit subtotal, you are not going to "make it up" with profits from something else. You might control expenses but that can only go so far.

Job costs only tell you about cost of goods sold (COGS), right? The job costs that are applied to work in process eventually end up in ...

Solution Summary

Your tutorial is 474 words and two references and argues that job costing information only shows a portion of the big picture. The discussion explains what is missing from job costing and job profits and what can happen if you ignore the non-product costs.