Job Costing Accounting

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.

Job Costing Accounting – Analysis of Job Costs
Prime cost Manufacturing overhead
Direct material Direct labor Indirect material Indirect labor Other
Conversion cost

Job Costing Accounting Terms

Prime cost

All the direct costs of manufacturing a product. Direct labor plus direct material costs.

Manufacturing overhead

Indirect labor, indirect materials and other manufacturing costs

Direct material

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

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.

Indirect material

All raw materials used in making a product which are not direct materials

Indirect labor

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.

Conversion cost

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 material

Raw materials includes all of the materials that go into making a product. Raw materials can either be direct materials or indirect materials.

Job Costing Accounting – Raw Materials
Raw material
Direct material Indirect material

The double entry postings for job costing are summarized in our reference on job cost accounting journal entries.

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