Job costing is another name for job order costing, a cost accounting system that collects costs separately for each job, customer order, contract or batch. Direct materials, direct labour and a share of manufacturing overhead are recorded on a job cost sheet so that the business knows what each job actually cost. The main entry gives the overhead formula and a worked example.
Where job costing is used
The shorter name is common in industries that do custom or project work: construction, printing, furniture making, engineering, repair shops, law and accounting firms, advertising agencies and film production. In these businesses each job differs, so costs cannot simply be averaged over identical units. Contractors and agencies often speak of job costing when they compare the actual cost of a project with the estimate used to price it.
While a job is in progress, its costs are held in work-in-process inventory. When it is finished and delivered, the cost moves to finished goods and then to cost of goods sold. Overhead is usually applied with a predetermined rate, and the gap between applied and actual manufacturing overhead is adjusted at the end of the period.
The alternative is a process costing system, used for large volumes of identical products such as chemicals or beverages, where costs are gathered by department and averaged over all units.