Job costing involves the accumulation of the costs of materials, labor, and overhead for a specific job or task. It is an invaluable tool for tracing jobs and examining them to see if their costs can be reduced in later jobs. An alternative use would be to determine if any excess costs can be billed to the client.

These costs are recorded in ledger accounts throughout the lifetime of the job or batch, it is then summarized in the final trial balance before the job cost or batch manufacturing statement is prepared.

What does job costing include:

Job costing includes the following accounting activities:

Materials: The cost of components are all accumulated and assigned to a product or project once the components are used.
Labor: Employees charge their time to specific jobs or projects, which are then assigned to the job, based on the labor cost of the employees.
Overhead: The overhead costs are accumulated in cost pools and then allocated to jobs or projects.

How is job costing used?

Job costing is the the process of determining the labor and materials cost for each job in a systematic way. The information is then used to create a quote for the client. and it can be used in virtually any industry but it is extremely popular in the service industry. This method is used to ensure than product pricing covers the actual costs, overhead and provides a profit at the end of the day.

Job costing is an effective way to ensure that a business can make a profit and the costs may be accumulated by job or by batch. In a typical job or project, direct material, labor, subcontract costs, equipment and other direct costs are tracked at their actual values. These costs are then accrued until the job or project is completed.