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Job Costing is a costing method applied to determine the cost of specific jobs or lots of production generally manufactured according to customers’ specifications. The main feature of job costing system is that no two orders are necessarily alike and all orders do not pass through the same manufacturing process. Job order system is generally used by production houses where products are manufactured according to the customers’ specifications such as building, contracting, machine tool manufacturing, furniture, job printing and general engineering.
A job may be a product, a unit, batch, sales order, project, contract, service, specific program or any other cost objective that is clearly distinguishable and unique in terms of materials and other services used.
The main purpose of job costing is to ascertain profit or loss on each job undertaken. Since costs are estimated before accepting a job and actual costs are compared to the estimated costs, it is also possible to ascertain whether the estimate was correct and/or the cost incurred is reasonable or not. This helps in improving the efficiency in operation as well as revising estimates for future quotation.
Job Cost Sheet: A job cost sheet is the basic document in job order costing. It accumulates costs for each job. All costs incurred-direct materials, direct labor, direct expenses and overheads are duly recorded. These job cost sheets are prepared using absorption costing and volume-based method of allocation of overheads.
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