Job costing

Job costing

= Job Order Costing versus Process Costing =

Job order costing is fundamental to managerial accounting. It differs from Process costing in that the flow of costs is traced by job instead of by process. For instance, think of an assembly line making cookies. Job order costing would track how much material is placed in each cookie. Process costing tracks the amount of dough used, the baking time, and other aspects of the process of making cookies. Job costing is typically used for special orders or when the product made is unique. Process costing is used when the products are more homogeneous in nature.cite book | author = Don R. Hansen and Maryanne M. Mowen | year = 2006 | title = Cost Management Accounting & Control | publisher = Thomas South-Western | location = Ohio | pages = ???? | isbn = 0-324-00232-7]

Using Job Order Costing

In a job costing system, costs are accumulated by job. For a typical job, direct material and direct labor are tracked at their actual values. These are recorded and tracked until the job is completed. Overhead is applied either by using a rate based on direct labor hours or by using an Activity Based Costing (ABC) cost driver. In either case, once overhead is added, the total cost for the job can be determined. Upon completion, the costs are transferred out of Work in Process to Finished Goods (Cost of Goods Sold for service industries).

Example

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.

XYZ corporation manufactures airplanes. 1 order was completed (#110), 2 received further work (#111, 112), and 1 new order was received (#113). Overhead is allocated at a rate of $100/DL Hour. All employees earn $20/hour. Beginning Work In Process Balances are as follows: #110, $25,000; #111, $10,000; #112, $12,000; #113 $0 (New Order). Below are the amounts of DM and DL used.

* #110 $2,000 DM, 25 DL hours. Therefore, $5,000 in new cost is added ($2,000 DM, $500 DL, $2,500 OH). The job had a total cost of $30,000. this amount is transferred out of Work in Process to Finished Goods or Cost of Goods Sold.
* #111 $3,000 DM, 30 DL hours. Therefore, $6,600 in new cost is added ($3,000 DM, $600 DL, $3,000 OH). The job has a new total cost of $16,600. This amount remains in Work in Process until completion.
* #112 $5,000 DM, 100 DL hours. Therefore, $17,000 in new cost is added ($5,000 DM, $2,000 DL, $10,000 OH). The job has a new total cost of $29,000. This amount remains in Work in Process until completion.
* #113 $1,000 DM, 10 DL hours. Therefore, $2,200 in new cost is added ($1,000 DM, $200 DL, $1000 OH). The job has a new total cost of $2,200. This amount remains in Work in Process until completion.

Caution: Remember, overhead is allocated on the basis of DL hours. While in this case, allocating overhead on the basis of DL cost ($5 of overhead for every $1 DL cost) would produce the same result, this may not always be the case. Since rates are developed based on a budget, if employees are actually paid a different rate from the budgeted rate, allocating at a $5 to $1 ratio would produce a different cost from the stated $100/DL hour allocation. Companies use slightly different overhead allocation methods.

References


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • job costing — ➔ costing * * * job costing UK US noun [C or U] ► ACCOUNTING, PRODUCTION the process of calculating how much each product or service will cost a business to make or provide, or the calculation itself: »This latest job costing software allows you… …   Financial and business terms

  • job costing — job order costing; = specific order costing A costing process to assess the individual costs of performing each job. This is important in organizations that produce a range of different products and also in service organizations …   Accounting dictionary

  • job costing — job order costing; specific order costing A costing process to assess the individual costs of performing each job It is important in organizations in which the production of different products is carried out, and also in service organizations, in …   Big dictionary of business and management

  • job costing — /ˈdʒɒb kɒstɪŋ/ (say job kosting) noun a type of costing in which costs are recorded against each individual job or order …   Australian-English dictionary

  • job costing. — See job order costing. * * * …   Universalium

  • job costing. — See job order costing …   Useful english dictionary

  • job order costing — job costing …   Accounting dictionary

  • costing — cost‧ing [ˈkɒstɪŋ ǁ ˈkɒːst ] noun [countable, uncountable] ACCOUNTING the process of calculating the cost of a future activity or product, or the calculation itself: • Railtrack originally said the scheme would cost £100 million, but last year… …   Financial and business terms

  • job-order costing — /job awr deuhr/ a method of cost accounting by which the total cost of a given unit or quantity is determined by computing the costs that go into making a product as it moves through the manufacturing process. Also called job costing. Cf. process …   Universalium

  • job-order costing — /job awr deuhr/ a method of cost accounting by which the total cost of a given unit or quantity is determined by computing the costs that go into making a product as it moves through the manufacturing process. Also called job costing. Cf. process …   Useful english dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”