What is 'job costing'?

Job costing is an accounting method that focuses on tracking and assigning costs to specific jobs or projects. This technique allows businesses to determine the profitability of each job undertaken by analyzing direct costs, such as materials and labor, alongside allocated overhead costs. By capturing all relevant expenditures associated with a particular job, a company can accurately assess whether that job was financially successful or not.

This method is particularly useful in industries where products or services vary significantly from one job to another, such as construction or custom manufacturing. It enables management to identify profitable jobs as well as those that may be leading to losses, leading to more informed decision-making regarding pricing, resource allocation, and overall business strategy.

In contrast, methods focused on reducing overhead costs, marketing analysis, or future labor cost estimation do not encompass the comprehensive tracking and analysis of costs for specific projects that job costing entails. Thus, understanding itself as a tool for assessing profitability through detailed cost tracking highlights why this option is the most accurate representation of job costing.