Job costing is a system of monitors costs and revenues for each specific job. By job costing, organizations can track expenditure, work within the budget of the project, and prevent losses while undertaking a project. Job costing is also called project-based accounting. It helps businesses to realize which costs are contributing to the profit margin and which ones are not. Due to this reason, job costing is used by manufacturing companies, white-collar businesses, medical services businesses, film studios, and retail companies.
Job costing is calculated by summing up the cost of materials, labor, and overhead cost of the specific project. Calculating the cost of materials is adding up the cost of all materials used in the job. The cost of delivery of these materials and the amount wasted are added to the cost of the material. Therefore, calculating the cost of material in the construction business would include wiring, lumber, screws, and any other materials used. The labor cost is the amount that would be needed to pay all the staff members working on the project from its beginning to end; this is one-day payroll for all the employees on the project multiplied by the number of days the project will take. The overhead cost is an approximation of the total cost of factors like rent office, depreciation of the used equipment, and the administrative costs of the business. Some businesses use a constant predetermined overhead cost on all projects whereas others calculate the overhead cost for each project.
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Breaking down expenses into categories can help businesses track costs of individual expenses better; this is important when dealing with costs that fluctuate often. Warning systems that alert users when project cost estimates are exceeded can improve the process. Estimate revisions also improve the process of job costing.
Reference
Bragg, S. (2015). Job Costing and Estimating . John Wiley & Sons.
