JOB ORDER COSTING
Job order costing is one of two primary means of valuing inventory and cost of goods sold (COGS). In this system, costs are assigned by job rather than continuously as with a process costing system. A job order costing system is suited for companies that offer distinct or custom products and services.
BENEFITS OF JOB ORDER COSTING
A job order costing system allows your company to record the costs incurred and the revenue received for each particular job. This facilitates comparisons between jobs and allows your organization to better understand what types of work are the most profitable.
THE JOB ORDER COSTING PROCESS
- Ensure that a job order costing system is appropriate for the organization
- Refer to the operating budget for the necessary direct material, direct labor, and overhead information
- Discover the capabilities of the firms current accounting software to facilitate a job order costing system
- Work with the appropriate individuals in the company to make any practical necessary to the company’s software to better facilitate job order costing
- Continuously review the capabilities and potential improvements to the system
FURTHER READING
These links elaborate on the topic at hand. They serve as a good starting point for those companies that would like to learn more or would like to address these topics “in house.” For those firms that prefer to continue to focus on their current responsibilities and would value the objective viewpoint of a professional from outside of the organization, click here.
Chapter 3
Excerpt: “Job-order costing is used when different types of products, jobs, or batches are produced, typically over a rather short period of time. In a job-order costing system, direct materials costs and direct labor costs are usually "traced" directly to jobs.”
YouTube – Job Order Costing – 1 Job & Process
Description: Visual example of the features of job-order costing.
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