Job order costing or simple job costing is an accounting system where manufacturing costs are assigned to a product or different groups of products. This system is different from simple process costing as it is applied in the situations where each and every product being produced, is different from others, so that the manufacturing cost of each product could be calculated separately. Here, a separate record of costs is kept for each product (as in case of custom home building business) or customer (as in case of individual cheques for customers in a restaurant). So, Job order costing systems are used as accounting records in companies that provide customized products, for keeping the individual record of each product being manufactured, sold or any transaction being made. It will report the cost of direct materials, direct labor and the actual manufacturing overhead consumed in completing each job. Restaurants and customed-service providers are perfect examples of businesses that need to follow job costing in order to follow each product or job. The job cost records work as the ledger or accounting documentation for keeping the records of inventories of work-in-process, finished goods and the cost of goods sold. Generally, cost assignment problems are more complex in a job order costing system than the simple process costing as in job costing record keeping, intense care is needed to record each cost in the ledger of each product separately, while in process costing the total cost of each inventory may be divided over the number of jobs to get the individual inventory cost for each job. For example an advisory person in a large criminal law practice would have to maintain separate records of costs of advising, dealing and defending each of his clients. clothing factory would keep separate track of the costs of filling orders for particular styles, sizes, and colors of jeans.
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