Use this Job Costing Calculator to determine the total cost of a specific job, or find a missing component (Direct Materials, Direct Labor, or Manufacturing Overhead) by providing the total cost and the other two variables.
Job Costing Calculator
How Do You Calculate Job Costing Formula?
Formula Sources: Investopedia, Corporate Finance Institute
Variables Explained
- Direct Materials (DM): The cost of raw materials that can be directly traced to the final product or service (e.g., lumber for a custom cabinet).
- Direct Labor (DL): The wages paid to workers who physically transform the direct materials into the finished product (e.g., the carpenter’s hourly rate).
- Manufacturing Overhead (MOH): Indirect manufacturing costs that cannot be directly traced to a specific job, such as factory rent, utilities, and indirect materials. This is typically an applied rate.
- Total Job Cost (TJC): The sum of all direct and indirect costs assigned to a particular job.
Related Financial Calculators
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- Activity-Based Costing Estimator
- Manufacturing Overhead Rate Tool
What is Job Costing?
Job costing, or job order costing, is an accounting method used to determine the total cost of a distinct, identifiable product or service. This method is essential for businesses that produce custom or unique products, such as construction companies, advertising agencies, repair shops, and custom furniture makers. Unlike process costing, where costs are averaged across a large volume of homogeneous products, job costing accumulates costs separately for each specific job or contract.
The primary components of job costing are Direct Materials, Direct Labor, and Manufacturing Overhead. Accurate job costing allows a company to set competitive and profitable prices, monitor costs against budgets, and evaluate the profitability of specific customer engagements. The process involves tracking all costs as they occur and then assigning them to the relevant job cost sheet.
How to Calculate Job Costing (Example)
Consider a custom boat builder who is completing Job #101 for a client. The costs recorded are as follows:
- Determine Direct Materials Cost: The builder used $15,000 worth of fiberglass, wood, and engine parts directly traced to Job #101.
- Determine Direct Labor Cost: The production team spent 200 hours on the job at an average rate of $40 per hour, totaling $8,000 in Direct Labor.
- Apply Manufacturing Overhead: The company applies overhead at a rate of 150% of Direct Labor cost. Overhead is $8,000 * 150% = $12,000.
- Calculate Total Job Cost: Sum the components: $15,000 (DM) + $8,000 (DL) + $12,000 (MOH) = $35,000.
- The Total Job Cost is $35,000.
Frequently Asked Questions (FAQ)
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Is Selling and Administrative Overhead included in Job Costing?
No. Selling and administrative expenses (like CEO salary, marketing costs, and office supplies) are considered period costs and are expensed in the period they occur. They are not assigned to the job cost sheet but are included in the overall profitability calculation (Gross Profit minus Period Costs = Net Income).
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What is the difference between Actual and Applied Overhead?
Actual Overhead is the real cost incurred (e.g., the actual utility bill). Applied Overhead is an estimate used during the production period (based on a predetermined rate) to ensure jobs are costed in a timely manner. The difference between the two is reconciled at the end of the period.
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Why is Job Costing important for pricing?
Accurate job costing provides the foundation for cost-plus pricing strategies. By knowing the true cost of a job, a company can add a target profit margin to arrive at a selling price, ensuring the job contributes positively to the bottom line.
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What is a Job Cost Sheet?
A Job Cost Sheet is a subsidiary ledger account that records all of the costs—Direct Materials, Direct Labor, and Manufacturing Overhead—charged to a specific job. It is the central document for tracking all inputs for one customer order.