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What is Job Costing?

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Whether you realize it or not, if you own a business you consistently allocate costs. Your company may specialize in construction work, document production, or legal representation; regardless of your profession, you incur costs as you create your goods or provide your services. Those costs, of course, must be predicted, tracked and accounted for in order for businesses to calculate profits or losses. As a result, businesses have developed several different accounting techniques in an attempt to capture those costs within their work, and job costing is one of the more popular of those approaches.

Rather than focus on the department involved in a particular job, or upon the time involved to complete that job, job costing attempts to identify and allocate costs associated with a particular job. Those costs might be standard costs (those costs which typically arise from the performance of a job of that nature), or actual costs (costs from the actual job). Labor is certainly an important component within any job costing system, but job costing also takes overhead into consideration. As an example, a computer-repair technician working under a job costing system would clock in for each separate job performed, rather than for a given number of hours per day. In addition to costs associated with the technician’s labor, a job costing approach includes specific material and overhead expenses. Given the potentially staggering amount of information within even a small business, it’s easy to see why job costing software underpins most job costing systems. Job costing software is now widely available, and, theoretically at least, offers businesses the opportunity to allocate job costs and track employee labor without the need for constant data input.

Next Page: What advantages does Job Costing offer as a cost-allocation system?

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