alleryStart learning →What changes when job order costing is applied to a service business such as a law or accounting practice?
AOverhead is no longer applied to jobs
BThere is no materials inventory to track
CEach client is treated as a single job
DDirect labor is no longer traced to jobs
Answer & Solution
Correct answer: B. There is no materials inventory to track
1. Job order costing suits a service business when the service and costs are unique to each customer.
2. Each customer, client or patient is a separate job or project, so treating a client as a job is unchanged rather than new.
3. Clients still incur direct costs, direct labor and applied overhead, so all three cost streams survive.
4. What disappears is materials inventory, since a service business holds none.
5. Direct project spending such as travel or supplies still gets charged to the job.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 2.3 Job Order Costing for a Service Company_
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