Management Accounting · Cost accounting methods

Job Costing: How to Prepare a Job Cost Sheet

Updated 11 October 2026 · Fact-checked

Job costing is a costing method for work done to a customer's order, where each job is costed separately. You add direct materials, direct labour, any direct expenses and absorbed overheads to get total job cost. Then you add a mark-up or margin to set the price.

Understand Job Costing

Job costing is used when each product is made to a customer's specification. Examples are a printing order, a custom-built machine, a repair or an audit assignment. Each job is different, so each one needs its own cost record.

The record is the job cost sheet. Each job gets a unique job number. Costs are collected on the sheet as the work happens. Direct materials are charged from material requisitions. Direct labour is charged from timesheets or job tickets, using hours worked multiplied by the labour rate. Direct expenses, such as hiring a special tool for one job, are added too.

Overheads cannot be traced to one job. So you add them using a predetermined overhead absorption rate, such as a rate per direct labour hour or per machine hour. You multiply the rate by the hours the job used.

The total of direct costs plus absorbed overheads is the total job cost. Businesses often price the job by cost-plus. A mark-up is a percentage of cost. A margin is a percentage of selling price. These are not the same, and exams test this difference.

Job costing differs from process costing. In process costing, output is identical and continuous, so costs are averaged over units. In job costing, each job keeps its own cost.

Key formulas to remember

Total job cost: Direct materials + Direct labour + Direct expenses + Absorbed overheads; Direct materials, labour and expenses together are the prime cost of the job.
Direct labour cost: Hours worked × Labour rate per hour; If overtime premium is not caused by this job, it is usually treated as overhead. Follow the wording of the question.
Overhead absorption rate (OAR): Budgeted overheads ÷ Budgeted activity level; Activity is often direct labour hours or machine hours. Use budgeted figures, not actual.
Overhead absorbed by a job: OAR × Actual activity used by the job; Use the job's own hours, not the total hours.
Selling price with mark-up: Total cost × (1 + mark-up %); Mark-up is based on cost.
Selling price with margin: Total cost ÷ (1 − margin %); Margin is based on selling price. A 20% margin means cost is 80% of price.

How to solve Job Costing questions

Use this order for any job costing question. It stops you missing a cost or using the wrong base.

1Read the question and list what is asked: total cost, selling price, profit or an unknown such as hours.
2Calculate direct materials for the job. Include only what the job used, and any scrap or wastage only if the question says to.
3Calculate direct labour for each grade or department: hours × rate.
4Add direct expenses if any are given for this job.
5Work out the overhead absorption rate from budgeted overheads and budgeted activity. Calculate one rate per department if departments are given.
6Multiply each rate by the job's hours and add the absorbed overheads.
7Add all parts to get total job cost. Then apply the mark-up or margin to find the price.
8Check that your answer is in the form asked, such as total, per unit or price, and round only at the end.

Quickest way: Column build-up on scrap paper

When to use it: Use this for Section A number entry or multiple choice questions where you have about three minutes.

Write four lines: Materials, Labour, Overheads, Total.
Fill each line using one multiplication only.
Calculate the OAR first if it is not given, and write it down with its unit.
Add the lines to get cost, then apply mark-up or margin in one step.
For multiple choice, estimate the answer first. Discard options that fail a rough check, such as price lower than cost.

Common mistakes in Job Costing

Confusing mark-up and margin.
Both are percentages of profit and the words sound similar.
Fix: Mark-up is on cost, so price = cost × (1 + %). Margin is on price, so price = cost ÷ (1 − %). Underline the word in the question.
Using actual overheads instead of budgeted overheads to find the rate.
Students see actual figures and assume they must be used.
Fix: The OAR is predetermined, so use budgeted overheads and budgeted activity. Actual figures only matter for over or under absorption.
Applying the total overhead to one job.
The overhead figure is large and easy to spot.
Fix: Multiply the OAR by only the hours this job used.
Using one overhead rate when the question gives separate departments.
Students rush and combine the data.
Fix: Work out a rate for each department and apply each to the job's hours in that department.
Forgetting direct expenses or including indirect costs as direct.
Students do not check each item against the job.
Fix: Ask if the cost can be traced to this job alone. If yes, it is direct. If not, it goes into overheads.
Giving the total when the question asks for cost per unit.
Students stop once the sum is done.
Fix: Reread the last line of the question and divide by the number of units if needed.

Worked examples

Example 1

Job 47 used materials costing $1,800, 40 direct labour hours at $12 per hour, and 25 machine hours. Budgeted production overheads are $90,000 and budgeted machine hours are 30,000. Overheads are absorbed on machine hours. The business adds a 25% mark-up on total cost. Calculate the selling price.

Show the solution

Materials = $1,800.
Labour = 40 × $12 = $480.
OAR = $90,000 ÷ 30,000 = $3 per machine hour.
Overheads absorbed = 25 × $3 = $75.
Total cost = 1,800 + 480 + 75 = $2,355.
Selling price = 2,355 × 1.25 = $2,943.75.

Answer: The selling price is $2,943.75.

Example 2

A job has a total cost of $4,200. The business wants a profit margin of 30% on the selling price. What is the selling price?

Show the solution

Margin is on selling price, so cost is 100% − 30% = 70% of price.
Price = 4,200 ÷ 0.70.
Price = $6,000.
Check: 30% of 6,000 = 1,800, and 6,000 − 1,800 = 4,200.

Answer: The selling price is $6,000. A 30% mark-up would give a different price of $5,460.

Exam tips

Look for the words mark-up and margin first. They decide whether you multiply or divide.
In number entry questions, follow the rounding and unit instructions exactly, such as two decimal places or whole dollars.
In multiple response questions, select exactly the stated number of options and check each statement against the method, such as whether a cost is direct or indirect.
Write the OAR with its unit, such as per direct labour hour, so you do not apply it to the wrong activity.
In longer multi-task questions, build a job cost sheet in order. Part marks are often given for each cost element.

Practice questions from Cost accounting methods

Job Costing in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Job Costing: frequently asked questions

What is job costing and when is it used?

Job costing is a method that collects costs for each separate job made to a customer's order. It is used in industries such as printing, construction, repairs and professional services, where each job differs.

How do I prepare a job cost sheet?

Give the job a number, then list direct materials, direct labour and direct expenses. Add overheads using the predetermined rate times the job's activity. The total is the job cost, and you then add profit to get the price.

What is the difference between mark-up and margin in job costing?

Mark-up is profit as a percentage of cost. Margin is profit as a percentage of selling price. A 25% mark-up equals a 20% margin, so always check which one the question uses.

How is job costing different from batch costing?

In job costing each job is unique and costed alone. In batch costing a group of identical units is made together, so you cost the batch and divide by the number of units.