How is the control over prime costs achieved in job-order costing system?
Control over prime costs in a job-order costing system is achieved through several key methods:
1. Estimating and monitoring direct materials costs: By accurately estimating the materials required for a specific job and closely monitoring the usage of these materials, managers can ensure that costs do not exceed budgeted amounts.
2. Tracking labor costs: Labor costs are another component of prime costs in a job-order costing system. Managers can monitor the time spent by employees on each job and compare it to budgeted amounts to control labor costs.
3. Implementing cost control measures: Managers can implement cost control measures such as negotiating better prices with suppliers, streamlining production processes, and training employees to be more efficient in order to control prime costs.
4. Regular performance reviews: Conducting regular reviews of job costs and comparing them to budgeted amounts can help identify areas where costs are exceeding expectations and take corrective action.
5. Using a standard costing system: Implementing a standard costing system can help establish benchmarks for direct materials and labor costs, making it easier to identify and address variances in prime costs.
By implementing these control measures, managers can effectively manage prime costs in a job-order costing system and ensure that projects are completed within budget.