Thursday, August 5, 2010

Job Order Costing in Service Companies:

Job order costing is also used in service organizations such as law firms, movie studios, hospitals, and repair shops, as well as manufacturing companies. In a law firm, for example, each client represents a "job," and the costs of that job are accumulated day by day on a job cost sheet as the client's case is handled by the firm. Legal forms and similar inputs represent the direct materials for the job; the time expended by attorneys represents the direct labor; and the costs secretaries, clerks, rent, depreciation, and so forth, represent the overhead.
In a movie studio, each film produced is a "job," and costs for direct materials (customs, props, film, etc.) and direct labor (actors, directors and extras) are accounted for and charged to each film's job cost sheet. A share of the studio's overhead costs, such as utilities, depreciation of equipment, wages of maintenance workers, and so forth, is also charged to each film. However, the method used by some studios to distribute overhead costs among movies are controversial and sometimes result in lawsuits.
In sum, the reader should be aware that Job order costing is a versatile and widely used costing method, and may be encountered in virtually any organization that provides diverse products or services

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