## Labor Cost Collection and Overhead Absorption in Job Costing
### Labor Cost Flow
Labor costs feed into two separate ledgers:
1. Work-in-Progress Ledger (Job Cost Card) – Direct labor for each job posted here; tracks ongoing job costs.
2. Overhead Expenses Ledger – Idle time and other indirect labor posted here against standing order or expense code numbers.
3. Timing – Posting is done at regular intervals (weekly or monthly) to keep records current.
#### Idle Time Treatment
- Classified under standing order/expense code numbers
- Posted to the departmental standing order in the Overhead Expenses Ledger — it is never posted to a job card
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### Collection and Absorption of Overheads
#### Step 1 – Collection
| Overhead Type | Collection Method |
|---|---|
| Manufacturing overheads | Collected via standing order numbers |
| Selling & Distribution overheads | Collected against cost account numbers |
Both are then apportioned to service and production departments on a suitable basis.
#### Step 2 – Transfer
Service department expenses are transferred to production departments after the initial allocation, so all overheads ultimately sit in production departments.
#### Step 3 – Application to Products
| Absorption Basis | Suited For |
|---|---|
| Machine hours | Capital / machine-intensive operations |
| Labour hours | Labour-intensive operations |
| % of direct wages | Simple allocation; cost-effective |
| % of direct materials | Material-intensive jobs |
#### Key Challenge
Different absorption bases produce different overhead charges for the same job, changing total job cost. Since overheads cannot be directly traced to specific jobs, applying a predetermined overhead rate is inherently arbitrary — this is the accepted practical approach in job costing.