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20.5 Compute the Cost of a Job Using Job Order Costing

Job Cost Calculation​

To compute the total cost of a job, we accumulate all costs assigned to that job:

Total Job Cost = Direct Materials + Direct Labor + Applied Manufacturing Overhead

Complete Example: Job Cost Calculation​

Marie's Catering - Job #102 (Wedding Reception for 150 people):

Step 1: Direct Materials

  • Food ingredients: €800
  • Beverages: €600
  • Decorations: €200
  • Packaging/supplies: €150
  • Total Direct Materials: €1,750

Step 2: Direct Labor

  • Head chef: 12 hours × €30/hour = €360
  • Sous chef: 10 hours × €25/hour = €250
  • Servers (3): 20 hours × €15/hour = €300
  • Total Direct Labor: €910

Step 3: Applied Manufacturing Overhead

  • Predetermined overhead rate: 50% of direct labor cost
  • Direct labor cost: €910
  • Applied overhead: €910 × 50% = €455

Step 4: Total Job Cost

  • Direct materials: €1,750
  • Direct labor: €910
  • Applied overhead: €455
  • Total Job Cost: €3,115

Job Cost Sheet Example​

═══════════════════════════════════════════════════════
JOB COST SHEET
═══════════════════════════════════════════════════════
Job Number:         102
Customer:           Smith Wedding
Description:        Wedding Reception - 150 guests
Date Started:       November 10, 2024
Date Completed:     November 15, 2024
Date Sold:          November 15, 2024

───────────────────────────────────────────────────────
DIRECT MATERIALS:
───────────────────────────────────────────────────────
  Food Ingredients              €  800.00
  Beverages                      600.00
  Decorations                    200.00
  Packaging/Supplies             150.00
                                ─────────
  Total Direct Materials      €1,750.00

───────────────────────────────────────────────────────
DIRECT LABOR:
───────────────────────────────────────────────────────
  Head Chef (12 hrs × €30)    €  360.00
  Sous Chef (10 hrs × €25)     250.00
  Servers (20 hrs × €15)        300.00
                                ─────────
  Total Direct Labor          €  910.00

───────────────────────────────────────────────────────
APPLIED MANUFACTURING OVERHEAD:
───────────────────────────────────────────────────────
  (50% of Direct Labor)
  €910 × 50%                  €  455.00

───────────────────────────────────────────────────────
TOTAL JOB COST                €3,115.00
───────────────────────────────────────────────────────

Selling Price:                €5,000.00
Job Cost:                     €3,115.00
Gross Profit:                 €1,885.00
Profit Margin:                37.7%
═══════════════════════════════════════════════════════

Multiple Jobs Example​

Marie's Catering - Multiple Jobs in Progress:

Job #101 (Office Lunch):

  • Direct materials: €400
  • Direct labor: €290
  • Applied overhead: €145 (50% of labor)
  • Total: €835

Job #102 (Wedding):

  • Direct materials: €1,750
  • Direct labor: €910
  • Applied overhead: €455
  • Total: €3,115

Job #103 (Corporate Event - In Progress):

  • Direct materials: €600
  • Direct labor: €400
  • Applied overhead: €200
  • Total: €1,200 (not yet complete)

Work in Process Total:

  • Job #101: €835 (completed, not yet sold)
  • Job #102: €3,115 (completed, not yet sold)
  • Job #103: €1,200 (in progress)
  • Total WIP: €5,150

Job Profitability Analysis​

Job #101:

  • Selling price: €1,500
  • Job cost: €835
  • Gross profit: €665
  • Profit margin: 44.3%

Job #102:

  • Selling price: €5,000
  • Job cost: €3,115
  • Gross profit: €1,885
  • Profit margin: 37.7%

Analysis:

  • Job #101 has higher margin (44.3% vs. 37.7%)
  • Job #102 has higher absolute profit (€1,885 vs. €665)
  • Both jobs are profitable
  • Can use this information for pricing future jobs

Cost per Unit​

If a job produces multiple units, calculate cost per unit:

Example: Job #104 produces 100 custom cakes:

  • Total job cost: €2,000
  • Units produced: 100
  • Cost per unit: €2,000 ÷ 100 = €20 per cake

Luxembourg Compliance Note​

In Luxembourg:

  • Job costs must be accurately calculated
  • Use PCN accounts properly
  • Maintain job cost records
  • Support pricing decisions
  • Consider VAT in pricing (but exclude from cost)
  • Job profitability affects business decisions

Think It Through​

How can job cost information help a business make better pricing and operational decisions? What insights can be gained from comparing job costs and profitability?