Job Costing is an accounting method that tracks and accumulates all costs associated with manufacturing specific production jobs, projects, or batches, enabling manufacturers to determine the actual cost of producing each product, compare actual costs against estimates or standards, and calculate accurate profit margins. Unlike process costing which averages costs across all units produced, job costing treats each work order, project, or production run as a distinct cost object, capturing direct materials, direct labour, and manufacturing overhead allocated specifically to that job. This detailed cost visibility is essential for make-to-order manufacturers, custom fabricators, job shops, and any operation producing diverse products where understanding individual job profitability drives pricing decisions, bid preparation, and continuous improvement initiatives.
The job costing process begins when a work order or production job is created, establishing a unique identifier for collecting costs. As the job progresses, all material issues are recorded against the job number, capturing both the quantity and cost of materials consumed. Labour charges accumulate as workers report time spent on each job through timesheets, shop floor terminals, or automated data collection systems. Manufacturing overhead (facility costs, equipment depreciation, utilities, indirect labour) is allocated to jobs using predetermined rates based on labour hours, machine hours, or other cost drivers. Modern ERP systems automate this data collection, with material transactions and labour reporting feeding directly into job cost records, eliminating manual compilation and providing real-time visibility into job profitability as work progresses rather than waiting until job completion.
Job costing delivers critical business intelligence for manufacturers. Comparing actual costs to quoted or standard costs reveals which jobs were profitable and which lost money, informing future pricing decisions and highlighting which types of work the operation performs efficiently. Analyzing labour variances shows whether jobs took more or less time than estimated, indicating estimating accuracy, worker efficiency, or process issues. Material variances reveal whether actual consumption matched plans or whether scrap, rework, or specification changes affected costs. Over time, accumulating job cost data creates a knowledge base supporting accurate estimating for similar future jobs. For manufacturers bidding on projects, detailed historical job costs enable confident, competitive pricing. For those seeking to improve profitability, job costing identifies which products, customers, or job types deliver the best margins, allowing strategic focus on the most profitable work whilst addressing inefficiencies in less profitable areas.
