Job Order Costing Essay Example | Topics and Well Written Essays - 1250 words

Job Order Costing - Essay Example Job order costing is applicable to job order work in factories, workshops, and repair shops, as well as to work by builder, construction, engineers, and printers. It is a highly useful procedure, and allows for these various different occupations to do their work efficiently and at the costs that were predetermined to go hand in hand with each job. In job order costing, the key is that the work is done to the customer's specifications. As a result, each job tends to be different in nature. Even if the job may seem to be exactly the same at first, often a customer will want a worker to do something different than what was originally thought to be done. For example, â€Å"job order costing is used for construction projects, government contracts, shipbuilding, automobile repair, job printing, textbooks, toys, wood furniture, office machines, caskets, machine tools, and luggage. Accumulating the cost of professional services (e.g., lawyers, doctors and CPA's), also fall into this category† (MAAW, â€Å"What Is a Cost Accounting System?†). Job Order Costing is used by companies where products or services are identifiable by individual units or batches—auto repair, tax return preparation, case in an attorney’s office, ship construction, etc. The costs attributable to a particular job are assigned directly to it. Difference between Job order Costing and Process Costing: "In Job Order Costing, Unit Cost computed by job. Many jobs are worked during the period. Costs are accumulated by individual jobs. Costs are traced and applied to individual jobs in Job order cost system. In Process Costing, Costs are accumulated by departments. Unit costs are computed by department. A single product is produced for a long period of time Costs are traced and applied to departments in a Process Cost system." (McGraw-Hill/Irwin, Chapter4, "Systems Design: Process Costing") Primary Objective in Job order Costing: When a job produces a specific quantity for inventory, job order costing permits the computation of a unit cost for inventory costing purposes. When jobs are performed on the basis of customer specifications, job order costing permits the computation of a profit or loss on each order. Since costs are revealed as an order goes through production, these costs may be compared with estimates which were made when an order was taken. Job order costing thereby provides opportunities for controlling costs. It allows the person to help try to keep costs as stable as they can, yet still find a way to make a profit. This ability helps keep both the worker and customer happy, and helps promote a better relationship between the contractor or professional and the person who is paying for the work. This can also help keep costs low, because the customer does not need to pay for services they do not need, even if the professional is capable of doing them. This way, the customer only needs to pay fo r exactly what they need from the professional. When job order or process cost methods are used, costs must be accumulated for control purposes according to the unit in which the product cost is to be stated. For example, Coal is measured by the ton, chemicals by the gallon, and lumber by board feet. Products, such as machines, automobiles and shoes are measured either by the individual unit or by a multiple