Question

What is job-order costing?

Please provide a thorough response!

Answer 1

Meaning of Job Costing: CIMA London defines Job Costing as “the category of
basic costing methods which is applicable where the work consists of separate contracts, jobs
or batches each of which is authorised by specific order or contract.” According to this method
costs are collected and accumulated according to jobs, contracts, products or work orders.
Each job or unit of production is treated as a separate entity for the purpose of costing. Job
costing is carried out for the purpose of ascertaining cost of each job and takes into account
the cost of materials, labour and overhead etc. The job costing method is also applicable to
industries in which production is in batches since batch production basically is of the same
character as the job order production, the difference being mainly one in the size of different
orders. The method then may also be described as “Batch Costing”.
Principles of Job Costing: The job costing method of costing may be regarded as the
principal method of costing since the basic object and purpose of all costing
 Analysis and ascertain cost of each unit of production
 Control and regulate cost
 Determine the profitability
The basic principles enunciated for the job costing method are valid essentially for all types of
industry. For example, printing; furniture; hardware; ship-building; heavy machinery; interior
decoration, repairs and other similar work.
Process of Job costing
 Prepare a separate cost sheet for each job
 Disclose cost of materials issued for the job
 Labour charges incurred(on the basis of bill of material and time cards respectively)
 When job is completed, overhead charges are added for ascertaining total expenditure
. Suitability of Job Costing
 When jobs are executed for different customers according to their specifications.
 When no two orders are alike and each order/job needs special treatment.
 Where the work-in-progress differs from period to period on the basis of the number of
jobs in hand.​​​​​​