What does a job order costing system track?

A job order costing system is designed specifically to track and accumulate costs associated with individual jobs or batches of goods. This system is particularly useful in environments where products are made to specific customer specifications or in limited quantities, such as in manufacturing companies, construction firms, and custom service providers.

In such a system, each distinct job or batch is assigned a unique identifier, and all associated costs—such as direct materials, direct labor, and overhead—are recorded against that identifier. This allows the company to determine the total cost associated with each individual job, facilitating accurate pricing, profitability analysis, and financial reporting.

By tracking costs on a job-by-job basis, businesses can also make better decisions regarding pricing, cost control, and resource allocation, ensuring that they remain competitive and profitable in their respective markets. This focus on individual jobs is what distinguishes job order costing from other costing systems, such as process costing, which aggregates costs over a continuous process rather than for specific jobs.