Job Order Costing is a cost accounting system that accumulates

manufacturing costs separately for each job. It is suitable for businesses

that provide customized, made-to-order products or services.

Here are some key points about Job Order Costing:

Jobs: In job order costing, a job can be anything for which a separate cost
is desired. Examples include a specific product, batch, service, project,
contract, or customer.
Cost Accumulation: Each job has its own unique production requirements
and costs are traced separately to each job. Direct materials and direct
labor are traced directly, while overhead is applied based on a
predetermined rate.
Cost Flows: Costs flow through several accounts: Materials, Work in
Process, Finished Goods, and Cost of Goods Sold. As jobs move through
the production process, costs are shifted from one account to another.
Overhead Application: Overhead is applied to jobs using a predetermined
overhead rate, which is calculated based on estimated overhead costs and
an allocation base such as direct labor hours or machine hours.
Job Cost Sheet: This is a document where all costs assigned to a particular
job are recorded. It provides a record of the direct materials, direct labor,
and manufacturing overhead costs incurred for a specific job.
Profitability Analysis: By comparing the total cost of each job with its sales
price, managers can analyze the profitability of each job.