When job order costing is used in a service business, the allocation of direct labor costs is normally based on direct labor hours, and the allocation of indirect costs is normally based on the indirect labor hours.

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Quizplus · Accepted Answer

In job order costing, both direct and indirect costs are typically allocated based on a variety of bases, not just labor hours. Direct labor costs are traced directly to jobs based on actual labor hours worked on the job, while indirect costs (overhead) are allocated based on a predetermined overhead rate, which could be based on direct labor hours, machine hours, or any other relevant base, not specifically indirect labor hours.

When Job Order Costing Is Used in a Service Business