Question

How does job costing work in a service company setting? Give example(s).

Answer 1

JOB COSTING IN SERVICE ORGANISATION.

Job costing in service organisation is the same as in manufacturing organisation.Except service organisation uses less materials.There is some minor difference in accounting also.There will be no manufacturing overhead but there they have some service overheads.Service organisation uses a cost sheet including Direct material, Direct labor and Over head.

EXAMPLES

1. DIRECT MATERIALS.

Materials for many service organisations are insignificant such as accounting and law firms.They provide their professional knowledge as service. Service organisations like auto repair shop have direct material for each job.

2.DIRECT LABOR.

It is the most significant cost to the service organisations.They will track the cost by using a time sheet and cost sheet just like manufacturing companies.

3.OVER HEAD.

Service and manufacturing companies will calculate over head in the same way.Both uses a predetermined overhead rate to calculate overhead.Because overhead in a service organisation is typically driven by direct labor hours in the servicing company.