Job Order Costing: Definition, Feature, Advantages and Limitations


Job Costing Definition

The labor cost of a job is ascertained based on job cards. A circulating job card is issued with each job to record the labor hours spent on different operations and the total labor cost on completion of the job. In a job costing system, each job or work order is of a specific nature. Job costing is fundamental to managerial accounting. It differs from Process costing in that the flow of costs is tracked by job or batch instead of by process. Manufacturing Overhead includes the costs of work in progress B, the overhead for depreciation, utilities and insurance, and the sales commissions expenses. From the total of $ 952,000, accountant deducts the cost of work in progress A and work in progress B.

So, each job has its own costing and setting of the profits thereof. In comparison to other costing methods, it is quite expensive due to customization. Manufacturers must opt for it in circumstances where it is really Job Costing Definition required. All costs relating to the job must be recorded on a Job Cost Sheet or Job Cost Card. It is vital in job order costing as it provides information about the cost of material issued and labour costs paid.

Job Costing vs. Process Costing

After some time, Roy decided he would make a career change. He has since started a company which provides maintenance work on historical works which reside in museums. However, it is a known fact that whenever any organization thinks of having an efficient mechanism, they have to bear the cost for the same. The experts are hired to control the costing mechanism, which is costly. Whenever there is an abnormal loss, the loss is adjusted under the profit and loss account statement. Details of material, labor, and overheads are given. Job costing is also known as job lot costing or lot costing.

In January 2015, the company’s project manager prepared a yearly plan, estimating approximately $625,000 in overhead costs. Moreover, the carrying balances from 2014 were raw materials $25,000, work in progress $95,000, and finished goods $31,000.


Additional benefits of accounting software for job costing include the following. No corrective action is possible, in case the actual profit is lower than estimated in job costing. The main objective of job costing is to ascertain the cost as well as the profit or loss on each job. As each job is different from other jobs, each job needs separate treatment under job costing. By comparing the actual cost of each job against the price charged for each job, the profit or loss made on each job is ascertained. Job costing may assess all costs involved in a construction “job” or in the manufacturing of goods done in discrete batches. Such a system provides thorough information on the materials, labor, and overhead cost for each project as when the company needs it.

Job Costing Definition

So, it could prove costly for the company to implement such a costing system properly. The method to allocate the cost to a cost pool may not be accurate.

Job costing definition

It will take 8 hours in Machine 1, 10 hours in Machine 2 and 3 hours in Machine 3. And the machine hour rate is Rs.20/-, Rs.30/- and Rs.100/- respectively. For example, Roy was once the curator of a large museum in the United States. Connecting with the science community on many levels, he has enjoyed his career.

Job Costing Definition

This included the cost of Jack’s time, rent, the cost of vehicles, insurance, taxes, utilities, indirect labor, indirect materials, depreciation of long-lived assets, and so forth. The accountant shares that job costing will be, probably, the most efficient accounting methodology. Roy can keep track of the costs for each of his contracts by implementing this type of accounting. He will be able to find which items take more or less time to maintain. Additionally, he can make sure to create company profits by adding a margin on top of his costs. By using a job costing software, bookkeepers can run the system quite smoothly.