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Job order costing is used when the products manufactured by a company are sufficiently different from each other. It is the process of assigning the costs incurred to a specific job you or your business is involved with.
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Job Order Costing
It is basically used by companies who manufacture a number of different products. Manufacturing as well as service industries widely used costing system for their business to understand cost incurred for each individual job because each job uses different product and therefore there is different cost associated with each job or product.
Job order costing is used worldwide by the companies. Examples of business using this system are clothing factories, food companies, accounting firms, law firms etc. Three basic elements of job order costing are direct material, direct labour and factory overhead. These elements are accumulated as per the assigned job numbers. Per unit cost of a particular job is calculated by dividing the total cost allocated to the job by the number of units in that job. Per unit cost formula is
Per unit cost= total cost applicable/ number of units
A cost sheet is used by the management to summarize the applicable job costs. Selling expenses and administrative expenses based on a percentage of manufacturing expenditure are recorded on the cost sheet to arrive at total cost.
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