Job costing accounting involves the allocation of costs to a particular job. Job costing accounting can apply equally as well to a service or manufacturing business providing costs can be allocated to a unit of production.
To understand the job costing process, it is necessary to have an understanding of some of the main terms involved as they have specific meanings.
The job costing terms listed below and the accompanying diagram act as a quick reference, and set out the most commonly encountered terms when dealing with job costing accounting.
|Prime cost||Manufacturing overhead|
|Direct material||Direct labor||Indirect material||Indirect labor||Other|
Job Costing Accounting Terms
All the direct costs of manufacturing a product. Direct labor plus direct material costs.
Indirect labor, indirect materials and other manufacturing costs
Direct material cost is the cost of all the identifiable materials used in the manufacture of a product. It must be possible to easily identify, track or count the materials to a particular unit of production.
Direct labor cost is the gross wage cost of all the labor associated with a particular job. The labor included must relate to those employees who are directly working on the item being produced.
All raw materials used in making a product which are not direct materials
All labor costs relating to the making a product which are not direct
Other manufacturing costs
All other costs of manufacturing excluding materials and labor. Selling and general and administration costs are not part of manufacturing costs.
All the costs of manufacturing a product other than the direct material costs. It is the cost of converting the direct materials into a finished product. Direct labor plus manufacturing overhead.
Raw materials includes all of the materials that go into making a product. Raw materials can either be direct materials or indirect materials.
|Direct material||Indirect material|
The double entry postings for job costing are summarized in our reference on job cost accounting journal entries.