Job order cost system

Definition

A job order cost system is a method of assigning and tracking manufacturing costs to individual jobs or batches. It is commonly used when products are customized or produced in small quantities.

5 Must Know Facts For Your Next Test

1. Each job has its own unique job cost sheet where direct materials, direct labor, and manufacturing overhead are recorded.
2. Direct materials and direct labor are traced directly to each job, while manufacturing overhead is allocated based on a predetermined rate.
3. The sum of all costs on the job cost sheet gives the total cost of the job.
4. Job order costing is essential for pricing, profitability analysis, and inventory valuation in custom production environments.
5. It contrasts with process costing which accumulates costs for continuous processes producing homogeneous products.

Review Questions

• What are the primary components recorded on a job cost sheet?
• How is manufacturing overhead allocated to individual jobs in a job order cost system?
• Why would a company choose a job order cost system over a process costing system?

Related terms

Job Cost Sheet: A document that records all costs associated with a specific job including direct materials, direct labor, and applied manufacturing overhead.

Direct Materials: Raw materials that can be directly traced to the production of specific goods.

Manufacturing Overhead: Indirect factory-related costs incurred during production such as utilities, depreciation, and maintenance.