What is Job Order Costing?
Job order costing is a cost accounting system where direct materials, direct labour, and a share of manufacturing overhead are assigned to specific jobs, batches, or orders. It suits businesses that produce custom or differentiated products such as construction projects, custom furniture, and consulting engagements.
How It Works
- Open a job cost sheet for each customer order or batch.
- Record direct materials issued and direct labour hours per job.
- Apply a predetermined overhead rate based on direct labour hours, machine hours, or another driver.
- On completion, transfer total job cost to finished goods or directly to cost of goods sold when delivered.
Saudi Context
Saudi construction contractors operating under the Saudi Contractors Authority and bespoke manufacturers use job order costing. Each project, often funded by the Public Investment Fund or large private clients, has its own job number for cost capture and zakat-compliant cost allocation.
Example
A Riyadh contractor opens job number 2025-117 for a SAR 8 million Vision 2030 project. By month-end SAR 600,000 materials, SAR 250,000 labour, and SAR 150,000 overhead have been charged. Total job cost so far is SAR 1 million.