What is the job costing and its characteristics?

Job costing is the basic job costing method used to determine the cost of a specific job, performed according to the customer requirement. This is the type where work is done by contracts or separate projects.

This type of costing is useful for the firms producing not identical products. Manufacturing firms use this method to control use of raw material, equipment and working hours and they will allocate the costs accordingly.

Objectives

The objectives of job costing are as follows −

• Provides separate accounts for each process, maintain the development of each job, to estimate the costs, when transitioning from one process to another process.

• Estimate the price based on the price of previous jobs.

• Profitable and non-profitable jobs are identified.

• Differentiate between departments based on cost and materials required.

• To get detailed information on departmental operations, so that it can adjust any sudden changes.

• Flexible to accommodate any kind of industry.

Characteristics

• Both manufacturing and non-manufacturing acquire a job costing process.

• Manufacture goods with customer specifications/demands (not for stock).

• Entities assess various jobs; each job has a separate cost unit.

• Production is not continuous.

• Accounts open for specific jobs, to know the exact costs for the job (including any extra cost).

• Cost finalizes after the total job is completed.

• Profit or loss is decided only after comparing the actual cost to the charged cost.

• Profit or loss of each job is calculated separately.

Documents

The documents required in job costing are as follows −

• Production/manufacturing order.

• Cost sheet.

• Miscellaneous documents.

Some of the firms who practice the job costing are mentioned below −

• Interior decorators.

• Machine tool manufacturers.

• Furniture industry.

• Musical instrument manufacturers.

• Management consultant industries.

• Toy manufacturers etc.