chapter 4 job costing
4.1 Job Costing
Job costing entails the development of a tracking system or database by whichcosts are matched to jobs. This generally entails specifically identifying theamount of direct labor and direct material that is used on a specific job. The otheroverhead costs are then assigned to a job by reliance on a predeterminedoverhead allocation formula. One common approach is to take the period's totalanticipated overhead and divide it by the anticipated labor hours to arrive at anamount of overhead that is expected to be incurred "per labor" (overhead can beapplied on other application bases, such as material usage; the goal is to try toclosely associate overhead to jobs based on consumption of overhead).
A logical starting point for costing a job is to determine the amount of direct laborthat is attributable to a specific job. Employees typically complete reports (via atime card, electronic clock, spreadsheet, etc.) indicating the amount of time theyworked. From the employees' perspective, these time reports are importantbecause they may be used to establish how much they are owed (i.e., how manyhours they worked). However, in addition to hours worked, time reports usuallyhave codes to identify the work performed. These codes can be matched tospecific tasks on specific jobs, but they will also include time spent on travel,breaks, job setups, and other work-related tasks that do not track to a specificproduct that is being produced. By querying the company's accounting system, itthen becomes possible to determine all of the direct labor time that was spent ona specific job. The indirect labor costs not traced to a specific job become part ofthe overhead cost pool, which is allocated across all jobs using the overheadapplication rate.
Direct materials are assigned to jobs in a manner very similar to direct labor. It isvery important that material that is used on a specific job be matched to the job.Just as employees are expected to maintain time records,
Job costing entails the development of a tracking system or database by whichcosts are matched to jobs. This generally entails specifically identifying theamount of direct labor and direct material that is used on a specific job. The otheroverhead costs are then assigned to a job by reliance on a predeterminedoverhead allocation formula. One common approach is to take the period's totalanticipated overhead and divide it by the anticipated labor hours to arrive at anamount of overhead that is expected to be incurred "per labor" (overhead can beapplied on other application bases, such as material usage; the goal is to try toclosely associate overhead to jobs based on consumption of overhead).
A logical starting point for costing a job is to determine the amount of direct laborthat is attributable to a specific job. Employees typically complete reports (via atime card, electronic clock, spreadsheet, etc.) indicating the amount of time theyworked. From the employees' perspective, these time reports are importantbecause they may be used to establish how much they are owed (i.e., how manyhours they worked). However, in addition to hours worked, time reports usuallyhave codes to identify the work performed. These codes can be matched tospecific tasks on specific jobs, but they will also include time spent on travel,breaks, job setups, and other work-related tasks that do not track to a specificproduct that is being produced. By querying the company's accounting system, itthen becomes possible to determine all of the direct labor time that was spent ona specific job. The indirect labor costs not traced to a specific job become part ofthe overhead cost pool, which is allocated across all jobs using the overheadapplication rate.
Direct materials are assigned to jobs in a manner very similar to direct labor. It isvery important that material that is used on a specific job be matched to the job.Just as employees are expected to maintain time records,