What Is Job Order Costing ?
A manufacturing firm generally produces goods based on demand forecasting. However,it sometimes produces them also on receipt of order from its customers. Goods produced and works done as per customers' order are called job. Therefore, the costing method designed to determine the cost of a job is very essential. Job order costing is the costing system that determines the cost of the jobs received from the client.. Thus, job order costing system estimates the costs of manufacturing products as per customers' orders.
Individual job need different quantities of raw materials, labor, and expenses depending upon the quality of the jobs to be performed. The size and quality of products requested may differ. Thus, such a job may not demand a normal manufacturing process. No two jobs are exactly alike. The end product may not be homogeneous. obviously, the cost of each job may differ with the uniqueness of the work order received from customers.
In the job order costing method, each job is treated as separate cost center. Overheads to a job are allocated on the basis of either processing hours or DLH or labor cost or machine hours.