1 Essentials of Business Development II Job Costing Janet Evans Regis University

2 Job Costing Systems Distinct product or service Usually small quantities, custom-made Costs tracked by each job

3 Job Costing Systems Absorption or full costing system – Includes overhead Usually large unit costs Examples: Aircraft, Furniture, Construction Also used in service industry Examples: Law Firms, Repair shops, Accounting firms, Hospitals

4 Why is Job Costing Important? For decision-making To value inventories To determine cost of sales

5 Elements of a Job Costing System Job identification Departments involved 3 components – Direct materials – Direct labor – Overhead

6 Direct Materials Items used on this specific job Requires a materials requisition Examples – Pacemakers – Prosthetics – Braces – Bandages

7 Direct labor Labor exclusively devoted to job Tracked by time cards Examples – Physician examining a patient – Physical therapist providing PT

8 Overhead All costs that are not direct materials or direct labor Called an indirect cost – Difficult to trace directly to the job Examples – Supervision – Utilities – Rent

9 Overhead is… Estimated Allocated to the job Use a reasonable basis

10 Developing an Overhead Rate Estimate total dollars of all overhead Determine a basis to charge to the job Example: allocate to patient based on physician hours rent utilities supervision insurance

11 Work in Process (WIP) Inventory Accumulate costs Costs linked to job card – Direct materials – Direct labor – Overhead Total: Work in Process Inventory

12 Example: Construction of Home Materials Labor Finished Goods COGS (Cost of Goods Sold) Income Statement

13 In Summary… Distinct product or service Costs tracked by job Overhead is estimated and allocated Critical for decision making – Valuation of inventories – Cost of doing business – Pricing