Job Order Costing

Job order costing is a cost accounting system that is used to gather costs for products made in batches or in irregular production runs. In job order costing, the cost objective is a specific job or production run. The cost information gathered relates to manufacturing costs and other relevant data for that production run. The form on which this data is recorded is called a job cost sheet..

                      The format and the particular information included on the job cost sheet differs for different companies, based on the data required by management. However, the basic information included is fairly standard. A job cost sheet is normally made up of three sections. The first section usually includes general information about the product, the customer, and/or the job. The second section is for accumulating costs of production. The third section is used for product cost summary information.

                      Some of the standard information normally included in the first section of the job cost sheet are the date the job began, the date the job was finished, a description or part number for the product, the customer that ordered the product, the quantity of product produced, and a job number that has been assigned. The middle section is used to gather information for the various cost components. These components include direct material, direct labor, and manufacturing overhead. Dates, references, and amounts are tracked for each component. The final section is used to summarize the data from the second section. Totals are normally reported for each cost component, as well as a unit cost for each cost component, and overall totals.

                      After the manufacturing costs are summarized in the third section of the job cost sheet, the cost of the completed product is moved from the work in process account to the finished goods inventory account. Management uses the summarized data for analyzing production performance, noting trends in costs of production, analyzing product prices, as well as for other decisions and analysis.

                     After a job cost sheet has been started, it is referred to as an open job cost sheet. Once the job is completed and the costs are summarized, it is called a closed job cost sheet. During the accounting period, the total of all the amounts from all the open job cost sheets will agree to the balance in the work in process account.

                     In some circumstances, a more detailed job cost sheet is needed. Sometimes, a departmental job cost sheet is used. This type of job cost sheet provides unit and total costs for every cost element in each of the production departments. This type of job cost sheet is more time-consuming to complete, but provides more meaningful information for management to use.

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