CPIM Practice Exam

Which of the following best describes job costing?

1. A system used for tracking overall production costs

2. A method for estimating future costs

3. A cost assignment to individual jobs or projects

4. A way to aggregate costs by departments

The correct answer is: A cost assignment to individual jobs or projects

Job costing is best described as a cost assignment to individual jobs or projects. This method allows businesses to accurately track and allocate costs specifically associated with each individual job rather than applying a blanket cost treatment to all jobs. This is particularly beneficial in environments where products or services are customized to meet specific customer requirements, as it provides detailed insight into how much it costs to complete each job. This system involves collecting direct costs, such as materials and labor, as well as an allocation of indirect costs. By utilizing job costing, businesses can assess profitability on a per-job basis, facilitating better decision-making regarding pricing, budgeting, and resource allocation. When considering other options: tracking overall production costs is more general and does not focus on individual jobs; estimating future costs pertains to forecasting rather than the actual assignment of costs to completed jobs; and aggregating costs by departments is concerned with departmental costing rather than job-specific costing. Thus, the unique aspect of job costing lies in its focus on specific jobs rather than broader cost categories.