JOB COSTING
Your goals for Job Order Costing System are to learn about
1. Basic concepts in job costing
2. Information systems for job costing environments
3. Tracking job costs in the corporate ledger
BASIC JOB COSTING CONCEPTS
Cost Data Determination
How does one determine the cost data for products and services that are the end result of
productive processes? The answer to this question is more complex than you might suspect.
Multiple persons, parts, and processes may be needed to bring about a deliverable output. Think
about an automobile manufacturer; what is the dollar amount of “cost” for the hundreds of cars that
are in various stages of completion at the end of the month? After this study you will have a better
sense of how business information systems are used to generate these important cost data.
Note that job costing is best suited to those situations where goods and services are produced upon
receipt of a customer order, according to customer specifications, or in separate batches (as a result
many companies would refer to this costing method as the job order costing method). For example,
a ship builder would likely accumulate costs for each ship produced. An aircraft manufacturer would
find this method logical. Construction companies and home builders would naturally gravitate to job
costing approach. Each job is somewhat unique. Material and labour can be readily traced to each
job and the cost assignment logically follows
Conceptualizing Job costing
Begin to develop an understanding of job costing by thinking about a simple illustration. Jack Castle
owns an electrical contracting company, Castle Electric. Jack provides a variety of products and
services to clientele. Jack has four employees, maintains a neat (rented) shop, a broad inventory of
parts and equipment, and a fleet of five service trucks. On a typical day, Jack will arrive at the shop
early and line out the day’s work assignments for his four electricians. Around 8:00 a.m., his
electricians begin to arrive, and he gives them their assignments, as well as the necessary parts and
equipment they will need. They are then dispatched to the various job sites.
One of Jack’s electrician is Donnie Odom. On July 14, Donnie arrived at the shop at 8:00 a.m. He first
spent thirty minutes getting his assignments and loading a service truck with necessary items to
complete the day’s work. His three tasks for the day included:
Job A: Cleaning and reconnecting the electrical connections and replacing a flood light atop a
billboard (materials required include one lamp at $150)
Job B: Replacing the breakers on an old electrical distribution panel at an office building
(materials required include 20 breakers at $20 each)
Job C: Pulling wire for a new residence under construction (material required include 500
feet of wire at $0.14 per foot)
Donnie successfully completed all three tasks on July 14. He spent 1 hour on the billboard, 2 hours
on the electrical panel, and 3 hours on the residential installation. The other 2 hours of his 8- hour
day were spent on indirect job administration and travel. During the day, Donnie also used a roll of
, electrical panel, and 3 hours on the residential installation. The other 2 hours of his 8-hour day were
spent on indirect job administration and travel. During the day, Donnie also used a roll of electrical
tape ($3) and a box of wire nuts (60 nuts at $0.05 each). Donnie is paid $18 per hour. Donnie drove
the truck 100 miles on July 14, and he used a variety of tools, ladders, and other specialized
equipment. Jack is paid $25 per hour, and he does not usually work on any specific job. Instead, his
time is spent doing spot inspections of work, getting permits, managing inventory, and tending to
the various other tasks associated with these jobs.
The “ job costing” question is: How much did it “cost” to change the light on the billboard, etc?
Obviously, the job cost included the direct costs of the job; specifically, Donnie’s direct labour time
(1 hour) and the direct material (one lamp at $150). But, the job could not have gotten done without
the shop, equipment, trucks, indirect labour time, Jack’s efforts, tape and wire nuts, and so forth.
These latter items constitute the indirect costs, or overhead, for the job. How then, are we to assign
costs to a specific job?
Tracking Direct Labor
A logical logical starting point for job costing is to track the direct labor to specific jobs. Donnie, and
the other electricians, fill out a time report documenting time spent on each job, as well as the time
spent on tasks that cannot be traced to a specific job:
Castle Electric Daily Time sheet
Employee: Donnie Odom
Date: 7/14/X5
Start/Stop Time Job Name Task client Admin Direct
Hours Labour
Hours
8:00 8:30 Admin Assignment and load n/a 0.5
8:30 8:45 Travel n/a 0.25
8:45 9:45 Job A Service and replace bulb Image Advertising 1.00
9: 45 10:15 Travel n/a 0.5
10:15 12:15 Job B Replace breakers TechWay Office Park 2.00
12:15 1 Lunch n/a n/a
1:00 4:00 Job C Pull wiring Mr/Mrs Lybrand 3.00
Home
4:00 4: 45 Travel Return to shop and n/a 0.75
and unload
Admin
Total Hours 2.00 6.00
Your goals for Job Order Costing System are to learn about
1. Basic concepts in job costing
2. Information systems for job costing environments
3. Tracking job costs in the corporate ledger
BASIC JOB COSTING CONCEPTS
Cost Data Determination
How does one determine the cost data for products and services that are the end result of
productive processes? The answer to this question is more complex than you might suspect.
Multiple persons, parts, and processes may be needed to bring about a deliverable output. Think
about an automobile manufacturer; what is the dollar amount of “cost” for the hundreds of cars that
are in various stages of completion at the end of the month? After this study you will have a better
sense of how business information systems are used to generate these important cost data.
Note that job costing is best suited to those situations where goods and services are produced upon
receipt of a customer order, according to customer specifications, or in separate batches (as a result
many companies would refer to this costing method as the job order costing method). For example,
a ship builder would likely accumulate costs for each ship produced. An aircraft manufacturer would
find this method logical. Construction companies and home builders would naturally gravitate to job
costing approach. Each job is somewhat unique. Material and labour can be readily traced to each
job and the cost assignment logically follows
Conceptualizing Job costing
Begin to develop an understanding of job costing by thinking about a simple illustration. Jack Castle
owns an electrical contracting company, Castle Electric. Jack provides a variety of products and
services to clientele. Jack has four employees, maintains a neat (rented) shop, a broad inventory of
parts and equipment, and a fleet of five service trucks. On a typical day, Jack will arrive at the shop
early and line out the day’s work assignments for his four electricians. Around 8:00 a.m., his
electricians begin to arrive, and he gives them their assignments, as well as the necessary parts and
equipment they will need. They are then dispatched to the various job sites.
One of Jack’s electrician is Donnie Odom. On July 14, Donnie arrived at the shop at 8:00 a.m. He first
spent thirty minutes getting his assignments and loading a service truck with necessary items to
complete the day’s work. His three tasks for the day included:
Job A: Cleaning and reconnecting the electrical connections and replacing a flood light atop a
billboard (materials required include one lamp at $150)
Job B: Replacing the breakers on an old electrical distribution panel at an office building
(materials required include 20 breakers at $20 each)
Job C: Pulling wire for a new residence under construction (material required include 500
feet of wire at $0.14 per foot)
Donnie successfully completed all three tasks on July 14. He spent 1 hour on the billboard, 2 hours
on the electrical panel, and 3 hours on the residential installation. The other 2 hours of his 8- hour
day were spent on indirect job administration and travel. During the day, Donnie also used a roll of
, electrical panel, and 3 hours on the residential installation. The other 2 hours of his 8-hour day were
spent on indirect job administration and travel. During the day, Donnie also used a roll of electrical
tape ($3) and a box of wire nuts (60 nuts at $0.05 each). Donnie is paid $18 per hour. Donnie drove
the truck 100 miles on July 14, and he used a variety of tools, ladders, and other specialized
equipment. Jack is paid $25 per hour, and he does not usually work on any specific job. Instead, his
time is spent doing spot inspections of work, getting permits, managing inventory, and tending to
the various other tasks associated with these jobs.
The “ job costing” question is: How much did it “cost” to change the light on the billboard, etc?
Obviously, the job cost included the direct costs of the job; specifically, Donnie’s direct labour time
(1 hour) and the direct material (one lamp at $150). But, the job could not have gotten done without
the shop, equipment, trucks, indirect labour time, Jack’s efforts, tape and wire nuts, and so forth.
These latter items constitute the indirect costs, or overhead, for the job. How then, are we to assign
costs to a specific job?
Tracking Direct Labor
A logical logical starting point for job costing is to track the direct labor to specific jobs. Donnie, and
the other electricians, fill out a time report documenting time spent on each job, as well as the time
spent on tasks that cannot be traced to a specific job:
Castle Electric Daily Time sheet
Employee: Donnie Odom
Date: 7/14/X5
Start/Stop Time Job Name Task client Admin Direct
Hours Labour
Hours
8:00 8:30 Admin Assignment and load n/a 0.5
8:30 8:45 Travel n/a 0.25
8:45 9:45 Job A Service and replace bulb Image Advertising 1.00
9: 45 10:15 Travel n/a 0.5
10:15 12:15 Job B Replace breakers TechWay Office Park 2.00
12:15 1 Lunch n/a n/a
1:00 4:00 Job C Pull wiring Mr/Mrs Lybrand 3.00
Home
4:00 4: 45 Travel Return to shop and n/a 0.75
and unload
Admin
Total Hours 2.00 6.00
