Cost and Management Accounting · Job Costing

Job Cost Sheet and Procedure of Job Costing

Updated 4 October 2026 · Fact-checked

Job costing is a method where cost is collected separately for each customer order, called a job. A job cost sheet records direct material, direct labour, direct expenses and absorbed overheads for that job. To solve questions, list the costs job-wise, add overheads at the given rate, then add profit to get the price.

Understand Job Cost Sheet and Procedure of Job Costing

A job is a work order made to a customer's specification. Each job is different, so you cannot average cost across units as you do in unit costing. You must track cost job by job. Printing, furniture, repair shops and construction fit this pattern.

The flow is simple. The customer sends an enquiry. The firm estimates cost and quotes a price. On acceptance, a production order is issued and a job number is allotted. All costs are then charged to that number until the job is complete and delivered.

The job cost sheet is the key record. It is opened when the job starts. It collects direct material (from material requisitions), direct labour (from job cards or time tickets), direct expenses, and factory overheads absorbed at a predetermined rate. Administration, selling and distribution overheads are added later to reach total cost. Profit on top gives the selling price.

Direct costs are traced to the job with documents. Indirect costs cannot be traced, so you absorb them using a rate such as a percentage of direct wages or a rate per labour hour. Questions usually give this rate or ask you to compute it.

When the job is finished, the cost sheet is closed, work-in-progress is moved to finished goods, and actual cost is compared with the estimate to learn why they differ.

Key rules to remember

Prime cost of a job: Prime cost = Direct material + Direct labour + Direct expenses; Direct material is net of any material returned to stores or transferred to another job.
Factory (works) cost: Factory cost = Prime cost + Factory overheads absorbed; Add work-in-progress adjustments only if the question gives opening or closing WIP.
Total cost of a job: Total cost = Factory cost + Administration overheads + Selling and distribution overheads; Use the rate given for each overhead. Selling overheads normally apply only to jobs sold.
Selling price: Price = Total cost + Profit; If profit is a % on price, Price = Total cost ÷ (1 − profit %). If on cost, Price = Total cost × (1 + profit %).
Overhead absorption rate (% of direct wages): Rate = (Overheads ÷ Direct wages) × 100; Other bases: % of direct material, % of prime cost, labour hour rate or machine hour rate.
Labour hour rate: Rate per hour = Overheads ÷ Total labour hours; Overhead for a job = Rate × hours worked on that job.

How to solve Job Cost Sheet and Procedure of Job Costing questions

Use this order for any job cost sheet or job costing question.

1Read the question and mark the job number, the cost heads given and the profit basis (on cost or on sale price).
2Work out direct material for the job: issues less returns and transfers. Check pricing method if given.
3Work out direct labour: hours × rate for each worker or grade, including any overtime premium only if it is charged to the job as per the question.
4Add direct expenses such as hire of special equipment or subcontract charges that relate to the job.
5Compute prime cost, then calculate the overhead absorption rate from the data and apply it to the job on the correct base.
6Add factory overheads, then administration and selling overheads, to get total cost.
7Add profit using the stated basis to get the price or quotation.
8Show headings and workings clearly. State assumptions if any item is unclear.

Quickest way: Column-style cost sheet with rate first

When to use it: Use in the exam when the question asks for a job cost sheet, price quotation or profit on a job, and gives several cost items.

For MCQs, find the one missing figure. Overhead rate is usually the trap: check whether it is on wages, material or hours.
For profit on sale price, convert at once: price = cost ÷ (1 − profit %). Profit of 20% on price means cost is 80% of price.
Eliminate options that ignore returned material or add profit on the wrong base.
In written answers, draw a vertical statement with the lines: Direct material, Direct labour, Direct expenses, Prime cost, Factory overheads, Factory cost, Admin overheads, Total cost, Profit, Price.
Put workings for the overhead rate and labour cost below the statement and refer to them by note numbers. This earns step marks even if one figure is wrong.

Common mistakes in Job Cost Sheet and Procedure of Job Costing

Charging indirect material or idle time wages directly to the job
Students treat all material and wages in the question as direct.
Fix: Read the wording. Only cost traceable to the job is direct. Idle time and indirect wages go to overheads unless the question says otherwise.
Using the wrong base to absorb overheads
Students apply the rate on wages to material or the other way round.
Fix: Underline the base in the question and compute the rate on that base. Apply it to the same base for the job.
Treating profit on sale price as if it were profit on cost
Both are percentages and look alike.
Fix: For profit of 25% on price, price = cost ÷ 0.75. For profit of 25% on cost, price = cost × 1.25. Check the wording every time.
Ignoring material returned to stores or transferred to another job
Students only add the issues listed.
Fix: Deduct returns and transfers out from the issues. Add transfers in from other jobs.
Adding administration and selling overheads before the factory cost stage
Students rush to the total without separating cost levels.
Fix: Follow the order: prime cost, factory cost, then total cost. Each overhead goes at its own level.
Omitting workings for the overhead rate
Students do the calculation mentally and write only the result.
Fix: Show the rate calculation as a note. A wrong figure with a correct method still earns marks.

Worked examples

Example 1

A job, No. 101, has the following costs: direct material ₹40,000 issued, of which material worth ₹2,000 was returned to stores; direct wages 500 hours at ₹60 per hour; direct expenses ₹3,000. Factory overheads are absorbed at 80% of direct wages. Administration overheads are 10% of factory cost. Profit is 20% on cost. Prepare the job cost sheet and find the price.

Show the solution

Direct material = ₹40,000 − ₹2,000 = ₹38,000.
Direct wages = 500 × ₹60 = ₹30,000.
Direct expenses = ₹3,000. Prime cost = ₹38,000 + ₹30,000 + ₹3,000 = ₹71,000.
Factory overheads = 80% of ₹30,000 = ₹24,000. Factory cost = ₹71,000 + ₹24,000 = ₹95,000.
Administration overheads = 10% of ₹95,000 = ₹9,500. Total cost = ₹95,000 + ₹9,500 = ₹1,04,500.
Profit = 20% of ₹1,04,500 = ₹20,900.
Price = ₹1,04,500 + ₹20,900 = ₹1,25,400.

Answer: Prime cost ₹71,000; factory cost ₹95,000; total cost ₹1,04,500; price ₹1,25,400.

Example 2

Job No. 202 used material ₹24,000 and direct labour of 400 hours at ₹50 per hour. Factory overheads for the year were ₹6,00,000 and total direct labour hours were 20,000. Administration overheads are charged at 15% of factory cost. The firm wants a profit of 25% on the selling price. Find the quoted price.

Show the solution

Direct labour = 400 × ₹50 = ₹20,000.
Prime cost = ₹24,000 + ₹20,000 = ₹44,000.
Factory overhead rate = ₹6,00,000 ÷ 20,000 hours = ₹30 per labour hour.
Factory overheads for the job = 400 × ₹30 = ₹12,000.
Factory cost = ₹44,000 + ₹12,000 = ₹56,000.
Administration overheads = 15% of ₹56,000 = ₹8,400. Total cost = ₹64,400.
Profit is 25% on price, so cost is 75% of price. Price = ₹64,400 ÷ 0.75 = ₹85,866.67 (approx.).
Check: 25% of ₹85,866.67 = ₹21,466.67; ₹64,400 + ₹21,466.67 = ₹85,866.67.

Answer: Total cost ₹64,400; quoted price about ₹85,867.

Exam tips

Questions often give a quotation task: estimate cost, then add profit. Present the cost sheet in a clean vertical format with all subtotals.
Check whether profit is on cost or on selling price before you calculate. Mention the basis in your answer.
In MCQs, watch for returns to stores, transfers between jobs and idle time. These change the direct cost figures.
Describe documents precisely if asked: material requisition note, job card or time ticket, and production order. Link each to the cost element it supports.
Write the overhead rate working separately so you earn step marks.

Practice questions from Job Costing

Job Cost Sheet and Procedure of 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 Cost Sheet and Procedure of Job Costing: frequently asked questions

What is a job cost sheet?

A job cost sheet is a record opened for each job. It collects direct material, direct labour, direct expenses and absorbed overheads. It helps you find the total cost and price of the job.

What documents are used in job costing?

Common documents are the production order, material requisition note, material return note, job card or time ticket, and the job cost sheet. Each document supports one part of the job's cost. The job number links them together.

How are overheads charged to a job?

Overheads are absorbed using a predetermined rate. The base can be direct wages, direct material, prime cost, labour hours or machine hours. Use the base given in the question.

How do I find the price if profit is on selling price?

Divide total cost by (1 − profit percentage). For 20% profit on price, divide cost by 0.80. This is different from adding 20% to cost.