JOB ORDER COSTING

JOB ORDER COSTING

• A costing method commonly used by companies producing dissimilar products, or what we call heterogeneous products, usually manufactured only when there is an order. When the job provides specifications from a customer that makes it different from the others and the cost of which is significant, the company do not make it unless ordered. Examples are house builders, plane manufacturer, ship builders, customized shirts, and customized paper products (with some company’s logo or whatnot) etc.
• Since the products are made based on an order, the cost allocation is simple enough, in such that the costs related to an order are simply accumulated.
• The company has to keep separate records (or what we call job order cost sheets) for each job in monitoring their costs. This is done to ensure that costs aren’t mixed up between orders.
• As the basis of sales price or contract price is usually the total cost of producing the product, it is important for a company to monitor the costs.

Let's have a simple example, shall we?

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