Cost components of the total cost of executing a job

Job order cost system is designed to show in detail their cost components of the total cost of executing a job which may take the form of either a special order or job or a batch of orders. A job cost sheet is prepared for every job which is undertaken on the basis of material requisition concerned. Labor cost on the basis of the time clocked in respect of the job with the help of time tickets and factory overheads are added to these cost components according to some rational methods of overhead absorption. Thus the total cost of a job as indicated by the job cost sheet consists partly of direct cost and partly of cost arrived at by assignment, allocation, apportionment and finally by absorption. Thus it is clear that similar jobs executed during a certain time period are bound to have different units of production. Units cost is determined by dividing total cost by the number of units or a volume of goods produce there under. The procedure for job order cost system may be summarized as

• Production order - For any job, the cost involved is estimated and on the basis of estimate price is quoted to the customer. If the job is accepted, a Production order is made by the planning department. It is in the form of instructions issued to the foreman to proceed with the manufacture of the product. It forms an authority for starting the work. It contains all the information regarding production.
• Recording of Costs – The costs are collected and recorded for each job under separate production order number. Generally, job cost sheet is maintained for each job. This is a document which is used to record direct material, direct wages and overheads applicable to respective jobs.
• Completion of job – On the completion of a job, a completion report is sent to costing department. The expenditure under each element of cost is totaled and the total job cost is ascertained. The actual cost is compared with the estimated cost so as to reveal efficiency or inefficiency in operation.
• Profit or loss on job – It is determined by comparing the actual expenditure or cost with the price obtain.