Job Order Costing
Jaap de Jonge, Management Consultant, Netherlands
Also referred to as 'Job Costing', job order costing is a method for assigning manufacturing costs to an individual product or batch of a product. The job order costing system is used typically when the products being manufactured are significantly different from each other.
The job order costing system creates a job cost record for each item, job or special order. The job cost record will report the direct materials and direct labor that have been used plus the manufacturing overhead assigned to that particular job.
Typical industries in which job order costing is used are make-to-order or engineer-to-order industries, such as building construction, engineering (ships, oil platforms) and custom equipment manufacturers.
When products are nearly identical or fully identical, the Process Costing
system is more likely be used.