What is Job Costing? Features, Procedure & Example

An analogy would be several patients in a doctor’s office – each person has different symptoms and therefore receives different treatments, medications, and tests from the same doctor. Each person’s total medical bill is like a “tab” that the patient has run up with the doctor. Calculating job costing accurately is crucial for businesses to ensure that costs are properly allocated, pricing is appropriate, and profitability is maximized. Utilizing a robust accounting or ERP system can streamline the calculation process and provide accurate and real-time job costing information.

Since every cost incurred in this job can be tracked, it is easy to find out where the mistake or excessive consumption has occurred so that it can be rectified. The three costs of production accumulate in an account called Work in Process, which is like the ‘tab” for the manufactured item. There are three debits to Work in Process – one for direct materials, one for direct labor, and one for factory overhead – as a result.

Job Costing vs. Process Costing

These examples will assume that overhead is allocated on the basis of Direct Labor Hours. Direct Material is abbreviated DM, Direct Labor as DL, and Overhead as OH. Our writing and editorial staff are a team of experts holding advanced job costing definition financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others.

A prime example is a construction company, since each building project in which it is engaged is unique. Another possibility is a consulting firm, since it must compile the costs incurred on behalf of each client. For the same reason, it makes sense for law firms to use job costing to compile costs for each client served. For both consulting and law firms, it makes sense to compile costs through a job costing system, since this makes it easier to justify billings to clients.

What are the costing procedures under job costing?

It also reveals that the “direct material” for the billboard task (Job A) was $150 (the light bulb). The wire nuts and tape that might have been used on the billboard will be dealt with as overhead, which is discussed later. If a job consists of a number of units of production, the total cost of the job is divided by the number of units to calculate the cost per unit. EVA-PBC methodology plays an interesting role in bringing strategy back into financial performance measures. While (ABC) Activity-based costing may be able to pinpoint the cost of each activity and resources into the ultimate product, the process could be tedious, costly and subject to errors.

Categorised in: Bookkeeping

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