Question

What is the purpose of job order costing? Give an example of a company who may use job-order costing and explain why you think so. 

Answer 1

Job order cost is a costing method where every job undertaken by the company is taken on a separate cost sheet to calculate cost of each job. Unlike process costing in job costing direct material and direct labor are directly linked with jobs. Manufacturing overheads are assigned using traditional or on the basis of level of activity. Job costing helps in ascertaining price to be charged with different jobs since everyt job undertake are different from each other.

Batch costing is also a variant of job order costing where every batch produced is taken as a particular job.

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An example of company that uses Job costing is Furniture making company such as IKEA or a vehicle service centre.

In case of IKEA every furniture made is unique in its way. Different sizes, colors, and varieties make it necessary for the company to use job costing so that pricing can be justified and reasonable. Nobody wants to sell a chair made at a cost of $2000 for $500 and similarly nobody will be interested in buying a chair that cost $500 for $2000.