What is Job Costing?
Costing involves many variables. Costing is used to determine the actual price that a company should charge for a particular product or service that it sells.
When costing, managers need to consider some or all of the following variables:
Bulk pricing (profit depreciation)
Cost per manufacturing of item
Shipping and handling charges
Taxes and duties
Targeted Profit Margin
Overall operating expenditures (rent, utilities)
Advertising and promotion
Current and future market trends
Some costs will consistently remain the same while others may fluctuate. This factor must be considered in the calculations. Taxes, for example, generally tend to remain stable while things like costs per item or shipping charges fluctuate quite often. Costing fundamentally has an effect on your bottom line or profit margin. This can be both a negative or positive effect, depending on the actual or “final” cost. Costing is a kind of semi accurate guessing game that is based on calculating realistic and perceived variables. If one factor is missing from your original costing, this will influence the profits that you make. Costing is difficult in some instances and may be highly ineffective when it comes to fashionable or high risk ventures. Fashion is a great example of how you can literally lose your shirt overnight. (Pardon the pun.) Let us take for example a great pair of shoes. While popular, they may initially sell at a 75% profit margin. As their popularity wanes that profit will drop to less than half when you must offer discounts in an effort to sell the remainder of the inventory. A good costing manager would have considered this drop in sales and added an extra 15% to the original purchase price simply to average out the loss of future market sales. Costing, another good reason to consider using one of our outsourced bookkeepers!