Job Costing
AdvancedJob costing is a method of tracking the costs of individual jobs, projects or orders separately, used when each piece of work is different, such as custom manufacturing, construction or professional services.
In job costing, each job has its own cost record. Direct materials and direct labour used on the job are recorded against it, and overheads are added using a predetermined rate, such as a rate per labour hour.
For example, a print shop takes a custom order. Materials cost 4,000, the job uses 30 labour hours at 40 an hour, or 1,200, and overheads are charged at 25 per labour hour, or 750. The total job cost is 5,950. The shop can compare this with the price charged to see the job's profit.
Job costing is used by businesses such as builders, furniture makers, repair shops, law firms, consultants and advertising agencies, where each customer's work is distinct.
It helps businesses price new jobs accurately, track profitability by customer or project and spot cost overruns while work is in progress. It contrasts with process costing, used where identical units are produced continuously and costs are averaged across them.
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