Job Order Cost Accounting
Job order cost accounting
is a type of costing that is used when it is fairly easy to
track costs to a specific job.
This type of accounting is used for large item manufacturing or for
services that are large in comparison to a firm's income. For example,
a manufacturer that makes airplanes would use this type of accounting,
as would a lawyer. In both of these instances, the actual costs for the
airplane and for a client's case are collected and reported as costs
for these specific items.
manufacturing where a product is produced in large quantities over and
over, the usual method of costing is standard cost accounting.
Job order cost accounting would not be practical in this
situation, but is the best method of costing when individual products
and services are non-repetitive in nature.
particular way of tracking costs is used
manufacturing jobs such as airplanes or special machinery
work by an Attorney
Costs are usually
recorded and collected on a job cost sheet.
job cost sheet is used to summarize the costs on a particular job. Each
job will have its own sheet and will be able to be identified with a
unique name or project number. The summary sheet will have sections for
each of the following types of costs:
the costs associated with the employees who are building the product or
performing the service. In the case of manufacturing, it's the
assemblers and machinists. In a law firm it's the lawyer working on a
the costs relating to the employees that are indirectly working on the
project. These employees would include machine repair, fork truck
drivers, etc. These individuals are responsible for keeping machinery
running, keeping parts stocked, delivering product, etc.
in these large projects, employees will keep track of the time they
spend on each project. In this way, the actual time spent on the job
can be recorded.
used for the project can amount to a large amount of the total costs in
manufacture of a product. A materials
is used to track the materials for each project. This form is filled out
for each material used in the project, noting the project name or
number. The form should also include information noting the material
name or part number, quantity, cost per unit and cost in total. This
information from the materials requisition form is then used to fill
out the materials section of the job cost sheet that was mentioned
are the overhead costs that a business incurs. An easy way to get an
idea of these costs and how they might be applied to a product is to
imagine our airplane manufacturer plant. In this plant, two airplanes
can be manufactured at a time. The plant has costs for heat, electric,
taxes, rent, etc. In this easy example, these costs could be divided in
two, with half of the costs charged to each plane. In reality it is
rarely this simple to allocate burden costs, but the idea is to fairly
allocate costs that are not directly related to individual products or
When the project is complete, the job cost sheet
should be complete also. The total costs based on job order cost
accounting will then be known for the project. The customer is billed
for the agreed upon revenue amount and the amount from the job cost
sheet is subtracted from this revenue. The result is the profit or loss
for the project.