A Job Cost System (job costing) accumulates costs incurred according to the individual jobs. Companies generally use job cost systems when they can identify separate products or when they produce goods to meet a customer’s particular needs.
Job Costing assigns costs to a specific unit or to a small batch of products that passes through production as a distinct identifiable job. Each job is a separate cost object. Different jobs can vary considerably in materials, labor and manufacturing overhead costs, so job costing accumulates these costs separately for each individual job.
Who uses job costing?
Job costing is common in industries that produce goods to meet customers’ specifications. Dell custom-builds each personal computer based on the exact components the customer orders. Since each PC is unique, Dell treats each order as a unique job. Dell uses job costing to keep track of the cost of producing each separate job. Job Costing would also be used by Boeing (airplanes), custom-home builders (unique houses), high-end jewelers and custom furniture and drapery manufactures.
This also includes examples such as homebuilders who design specific houses for each customer and accumulate the costs separately for each job and caterers who accumulate the costs of each banquet separately. Consulting law and public accounting firms use job costing to measure the costs of serving each client. Motion pictures, printing and other industries where unique jobs are produced use job costing. Hospitals also use job costing to determine the cost of each patient’s care.
However, job costing is not confined to manufacturers. Service providers such as hospitals and physicians, law firms, accounting firms and marketing firms all use job costing to determine the cost of serving their clients.
The companies use job costing when different jobs vary widely in:
- The resources and time required
- The complexity of the production process
As, a result the jobs are so different, it would not be reasonable to assign them equal costs. Therefore the cost of each job is compiled separately.
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