What Is Job Order Costing?
Job order costing is a cost accounting method that tracks costs for each individual job, order, or batch separately — used by businesses that make custom or distinct products like furniture, construction, or print shops.
Job order costing accumulates direct materials, direct labor, and applied manufacturing overhead separately for each specific job, giving an accurate total cost per job.
- 1↓Job RequisitionA specific job or order is opened, e.g. a custom furniture order.
- 2↓Direct MaterialsMaterials issued for the job are tracked on a materials requisition form.
- 3↓Direct LaborWorkers log hours on the job via time tickets.
- 4↓Overhead AppliedManufacturing overhead is applied using the predetermined overhead rate.
- 5↓Job Cost SheetAll costs are totaled on the job cost sheet.
- 6Finished GoodsCompleted job moves to finished goods, ready for sale or delivery.
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Step-by-step worked examples
A custom cabinet job used $2,500 in direct materials, $1,800 in direct labor, and 60 labor hours at a predetermined overhead rate of $20/hour. Find total job cost.
Overhead applied = POR × Hours = 20 × 60 = $1,200 Job Cost = DM + DL + Overhead Job Cost = 2,500 + 1,800 + 1,200 = $5,500
A print shop job used $600 in materials and 15 machine hours at a $30/hour overhead rate; no separate direct labor is tracked. Find job cost (materials + overhead only).
Overhead applied = 30 × 15 = $450 Job Cost = DM + Overhead = 600 + 450 = $1,050
If a job's total cost was $8,400, direct materials were $3,000, and overhead applied was $2,400, find direct labor.
Job Cost = DM + DL + Overhead 8,400 = 3,000 + DL + 2,400 8,400 = 5,400 + DL DL = $3,000
Flashcards
Quick quiz
Q1.Job order costing is best suited for businesses that:
Q2.Which of these is NOT one of the three job cost components?
Q3.Materials: $3,000, Labor: $2,000, Overhead applied: $1,500. What is the total job cost?
Q4.What tracks labor hours spent on a specific job?
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Common mistakes
Using actual overhead instead of the predetermined overhead rate during the period. — Correct: Overhead is applied using a predetermined rate estimated in advance, then reconciled with actual overhead at period end.
Assuming job order costing works for identical, continuously produced units. — Correct: Job order costing fits custom/distinct jobs; process costing fits mass production of identical units.
Forgetting to track direct labor separately from overhead. — Correct: Direct labor is tracked separately via time tickets, distinct from indirect labor included in overhead.
Skipping the job cost sheet. — Correct: The job cost sheet is essential — it's the record that totals materials, labor, and overhead for each job.
FAQ
What is job order costing?
A cost accounting method that tracks direct materials, direct labor, and overhead separately for each individual job or order.
What is the job order costing formula?
Job Cost = Direct Materials + Direct Labor + (Predetermined Overhead Rate × Allocation Base).
What are examples of job order costing?
Custom furniture, construction projects, print shop orders, and consulting engagements billed per project.
How do you calculate cost under job order costing?
Add up direct materials and direct labor for the job, then apply overhead using the predetermined overhead rate multiplied by the actual allocation base used.