Job-Order Costing
A cost accounting method that tracks direct materials, direct labor, and overhead separately for each unique job, batch, or custom order.
What is Job-Order Costing?
Job-order costing is a cost accumulation system used by businesses that produce unique or custom products and services. Each job is assigned its own cost record — known as a job cost sheet — that separately accumulates direct materials, direct labor, and applied manufacturing overhead. The total cost of a completed job is divided by the number of units produced to determine the unit cost, which informs pricing and profitability analysis. Job-order costing is common in industries such as construction, aerospace, custom manufacturing, legal services, and hospitals, where each client engagement or project differs significantly from the next.
Example
A custom cabinet maker receives an order for kitchen cabinets. The job cost sheet records $1,800 in lumber and hardware (direct materials), $1,200 in carpenter wages (direct labor), and $600 in applied overhead. The total job cost of $3,600 is compared against the $4,500 selling price to confirm a $900 gross profit.