What Is Job Costing?
Also known as: job order costing, job cost accounting
Definition
Job costing accumulates material, labor, subcontract and overhead costs against a specific job or work order, so each order has its own actual cost and margin. It suits make-to-order and engineer-to-order shops where every job differs.
Job Costing Explained
In job costing, the job (or work order, production order, shop order) is the cost object. Material issues, labor reported on operations, machine time, outside processing and applied overhead all post to that job. When the job completes, the accumulated cost transfers from work in process to finished goods or to cost of goods sold, and any difference against the quoted or standard cost is the job variance.
It contrasts with process costing, where cost is averaged over a continuous flow of identical units, such as chemicals or bulk food. Job costing is the natural fit for job shops, machine shops, aerospace and defense suppliers, and engineered equipment makers, where two orders for the same part number can still consume very different hours and material.
ERPs implement it through the order header. Infor SyteLine collects costs on the Job Order and its operations and materials, and rolls them into the job's actual cost. NetSuite posts work order issues and completions to WIP accounts, with labor and overhead via manufacturing routing and operation sequences. SAP carries costs on the production order or on a WBS element for project work. Infor LN accumulates cost on the production order and, for projects, on project pegged cost components.
The accuracy of the result depends on shop floor discipline. If labor is booked late, material is issued in bulk to a job and never returned, or scrap is not recorded, the job cost looks better than reality and margin reporting becomes fiction.
Why It Matters
- It shows real margin per order, which is the only way to learn which customers and part families actually make money.
- Actual job cost versus estimate feeds back into quoting, so the next quote is based on measured hours and scrap rather than guesses.
- It supports cost-plus and progress billing contracts where the customer or an auditor can ask for cost support.
- Open job balances make up the WIP inventory on the balance sheet, so job cost data directly affects period close.
In Practice
A shop quotes a machined bracket order at 120 hours of labor and 4,000 of material. Closing the job shows 150 hours and 4,600 of material because a first article failed and was reworked. The job variance of roughly 30 hours and 600 of material flags that the quote assumed no rework, and the estimator can raise the scrap allowance on that part family.
Frequently Asked Questions
What is the difference between job costing and process costing?
Job costing tracks cost per distinct job or order. Process costing averages cost across a continuous production flow of identical units. Job shops and engineer-to-order makers use job costing; chemicals and bulk goods usually use process costing.
Which costs go on a job?
Direct material, direct labor, machine time, outside processing or subcontract charges, and applied overhead. Some companies also charge tooling or setup to the job.
How does job costing relate to WIP?
Until a job is completed or closed, its accumulated cost sits in work in process inventory. Completion moves the cost to finished goods or cost of goods sold.
Related Terms
Work Order
A work order is the ERP document that authorizes production of a defined quantity of an item by a due date. It snapshots the bill of materials and routing, drives material issues and labor reporting, and collects actual cost for the job.
WIP (Work in Process)
WIP (Work in Process) is inventory that has been released to production and has begun conversion but is not yet a finished good. It includes partially machined parts, subassemblies, and material sitting in queue between operations.
Standard Cost
Standard cost is a predetermined per-unit cost for material, labor, and overhead, set in advance and used to value inventory and transactions. Differences between standard and actual are captured as variances that isolate where cost deviated.
Actual Cost
Actual cost is the real cost incurred to produce or acquire an item, accumulated from the specific material prices paid, labor hours reported, and overhead applied, rather than from a predetermined standard.
Job Order
A job order in SyteLine is the production work order that authorises manufacturing a quantity of an item. It carries its own copy of the bill of material and routing, collects material, labor, and overhead costs, and moves through a defined status life cycle.
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