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What is Job Costing?
Job Costing is an accounting method used to track the expenses associated with a specific job, project, or work order, allowing businesses to measure profitability with precision.
Definition
Job Costing is a cost accounting system that assigns direct materials, direct labor, and allocated overhead costs to individual jobs or projects.
Key Takeaways
- Job Costing tracks the cost of each job separately.
- Useful for customized products, services, or projects.
- Helps organizations analyze profitability and control costs.
Understanding Job Costing
Job Costing is widely used in industries where work varies by customer or project, such as construction, consulting, manufacturing of custom goods, and professional services.
The system requires detailed cost tracking for each job, including:
- Materials used
- Labor hours worked
- Machine or overhead allocation
This enables more accurate pricing, budgeting, and financial reporting.
Companies rely on Job Costing to compare estimated costs with actual costs and make better managerial decisions.
Formula (If Applicable)
A common formula in Job Costing is:
Total Job Cost = Direct Materials + Direct Labor + Applied Overhead
Applied overhead is often calculated using a predetermined overhead rate.
Real-World Example
A construction company estimates a project will require P120,000 in materials, P80,000 in labor, and P50,000 in overhead. By tracking actual usage, the company ensures the project stays within budget and can accurately assess profit.
Importance in Business or Economics
Job Costing is essential for:
- Profitability analysis
- Pricing accuracy
- Cost control and reduction
- Contract management
- Financial transparency
It helps companies deliver projects efficiently while maintaining healthy margins.
Types or Variations
- Actual Job Costing: Uses actual costs only.
- Normal Job Costing: Uses actual materials and labor, with applied overhead.
- Standard Job Costing: Uses predetermined standard costs for estimation.
Related Terms
- Process Costing
- Overhead Allocation
- Cost Accounting
Sources and Further Reading
- Cost Accounting Textbooks
- Corporate Finance Institute (CFI)
- Investopedia — Job Costing Overview
Quick Reference
- Tracks project-specific costs.
- Used for custom work or non-standard production.
- Helps measure job profitability.
Frequently Asked Questions (FAQs)
Which industries use Job Costing?
Construction, consulting, custom manufacturing, and professional services.
What is applied overhead?
Allocated indirect costs assigned to a job using a predetermined rate.
Why is Job Costing important?
It enables accurate pricing and prevents cost overruns.
