Job order costing is a costing method used to allocate costs to specific jobs or orders, often for products that are distinctly different from each other. It tracks direct materials, direct labor, and manufacturing overhead costs for each job individually.
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Job order costing is typically used in industries where products are customized or produced in small batches.
Costs are accumulated on a job cost sheet, which acts as a subsidiary ledger for the Work in Process account.
Direct materials and direct labor costs are traced directly to each job, while manufacturing overhead costs are allocated based on a predetermined overhead rate.
The total cost of a completed job includes all direct materials, direct labor, and applied overhead costs incurred during the job's production.
Common examples of industries using job order costing include construction, custom manufacturing, and professional services.
Review Questions
What types of industries most commonly use job order costing?
How are manufacturing overhead costs applied to individual jobs in a job order costing system?
Describe the purpose and components of a job cost sheet.
A rate calculated at the beginning of the year by dividing estimated total manufacturing overhead by estimated total units in the allocation base.
Work in Process (WIP): An inventory account that represents partially completed goods; it accumulates costs associated with production until the goods are finished.