A Complete Guide to Job Costing
If you are working in the construction industry, you might be familiar with the term “Job costing”. But how do you describe it in words? What is job costing? Do you truly know enough about job costing to make a better budget and plan for similar projects in the future? Why do you have to know about job costing? In this article, we will bring you a clear picture of the term "Job costing" and make it easier for you to understand other related terms that you should distinguish in construction accounting. Let’s figure it out together!
What is Job Costing?
Job Costing is a technique from management accounting. This method of costing is used to determine the costs of specific jobs or work. It is also applied where work consists of separate work or contract jobs. This practice is also known as ‘Job Lot Costing’ or ‘Lot Costing.’
There are two types of costs:
Direct: Costs directly linked to individual jobs when it is directly traceable
Indirect: These are the overhead costs not directly linked to a project.
Overheads are the business running costs. They have no direct link to generating income and are often put under Gross Profit on the Income Statement. Most commonly, these are placed underselling and general and administrative expenses.
What are the Special Features of Job Costing?
The special features of job costing striking our attention include:
Under Job Costing, production is carried on by a manufacturer against their customer’s order and not for stock.
Each job or work-order is of a specific nature.
Under Job Costing, the cost of each job is ascertained separately. Therefore, it’s easy to track costs on a per-project basis to analyze pricing and profitability better, or in other saying, determine profit or loss on each job.
It helps to detect which jobs are more profitable.
It provides the base for deciding the cost of similar jobs to be undertaken in future as a part of future planning.
Job Costing helps in managing and controlling costs better because the estimated and actual costs are in comparison.
