When job costing is used as a service firm

Question

Quizplus · Accepted Answer

Service firms typically have indirect costs such as rent, utilities, and administrative expenses that cannot be directly traced to a specific client job. These indirect costs are allocated to client jobs based on a cost allocation method, such as using a predetermined rate or a percentage of direct costs. Direct costs, such as labor and materials directly used for a specific client job, are still traced to the job. Therefore, indirect costs are allocated to client jobs in job costing for service firms.

When Job Costing Is Used as a Service Firm