Job costing may be defined as a system of costing in which the elements of cost are accumulated separately for each job or work order undertaken by an organization. Industries which manufacture products or render services against specific orders use job costing or job order method of cost accounting. In the job costing system, an order or a unit, lot or batch of product may be taken as a cost unit, i.e. a job. Job costing is a method of costing in which cost units can be separately identified and need to be separately costed.
The following are the features of job costing.
- It is a specific order costing
- A job is carried out or a product is produced is produced to meet the specific requirements of the order
- Job costing enables a business to ascertain the cost of a job on the basis of which quotation for the job may be given.
- While computing the cost, direct costs are charged to the job directly as they are traceable to the job.
- Indirect expenses i.e. overheads are charged to the job on some suitable basis.
- Each job completed may be different from other jobs and hence it is difficult to have standardization of controls and therefore more detailed supervision and control is necessary.
- At the end of the accounting period, work in progress may or may not exist.