Chapter 20: Job Order Costing
Chapter Introduction​
Marie's restaurant has been growing, and she's started offering catering services for special events. "Each catering job is different," she tells Monsieur Schneider. "Some are small office lunches for 20 people, others are large weddings for 200 guests. How do I know what each job actually costs me? And how do I price them to make sure I'm profitable?"
Monsieur Schneider explains that Marie needs a job order costing system. "Job order costing tracks costs for each individual job or project," he says. "This is perfect for businesses like yours where each job is unique—catering events, custom orders, or specialized services. It helps you understand the true cost of each job so you can price appropriately and identify which types of jobs are most profitable."
Job order costing is a costing system that accumulates costs for each individual job, order, or project. Each job is unique and can be separately identified. Costs are tracked by job, allowing businesses to determine the cost and profitability of each specific job.
In Luxembourg, job order costing is essential for many SMEs because:
- Many businesses provide customized products or services
- Service companies need to track costs by client or project
- Craft and artisan businesses create unique items
- Understanding job costs helps with pricing decisions
- Job profitability analysis supports business decisions
This chapter teaches you how job order costing works, how to track costs by job, how to allocate overhead, and how to calculate job costs. You'll also learn how to apply job order costing in Luxembourg SMEs, including service companies and craft businesses.
By the end of this chapter, you'll be able to implement a job order costing system to track costs and profitability by job—just like Marie will learn to do for her catering services.
Why It Matters​
Job order costing is essential for businesses that produce unique products or provide customized services because:
- Accurate Job Costs: Track the true cost of each job
- Pricing Decisions: Set prices based on actual costs
- Profitability Analysis: Identify which jobs are most profitable
- Cost Control: Monitor costs by job to identify issues
- Bidding and Quoting: Prepare accurate bids for new jobs
Luxembourg-Specific Importance:
- Many SMEs provide customized services
- Service companies need job costing
- Craft businesses create unique products
- Accurate costing supports competitive pricing
- Job profitability helps with business decisions
Understanding job order costing helps you:
- Track costs accurately
- Price jobs appropriately
- Identify profitable jobs
- Control costs
- Make informed decisions
Learning Objectives​
By the end of this chapter, you should be able to:
- Compare and contrast job order costing and process costing
- Describe and identify the three major components of product costs under job order costing
- Use the job order costing method to trace the flow of product costs through the inventory accounts
- Compute a predetermined overhead rate and apply overhead to production
- Compute the cost of a job using job order costing
- Determine and dispose of underapplied or overapplied overhead
- Prepare journal entries for a job order cost system
- Explain how a job order cost system applies to a nonmanufacturing environment
- Understand Luxembourg service company job costing applications
- Apply job order costing to Luxembourg craft/artisan businesses