Costing Methods: Job Order Costing

Prim Construction receives a contract to build an office building for a local tech firm.
The client specifies custom workspace layouts and energy-efficient systems for the building.
For this project, Prim Construction uses job-order costing.
Job order costing is a cost accounting method used to assign costs to specific, individually identifiable jobs.
This approach is best suited for businesses that produce non-standardized products or services.
It is commonly used in industries such as construction, film production, and printing, where each project has unique requirements.
A job cost sheet tracks all related costs.
Materials like steel, glass, and insulation are requested through requisition forms and recorded on the sheet.
Labor hours for contractors and engineers are tracked and recorded using time tickets.
Overhead costs are also added to the job cost sheet based on predetermined rates.
These rates are calculated by dividing estimated total overhead costs by estimated annual operating activity.
The total recorded cost helps accurately invoice the client and evaluate the project's profitability.