The job order costing system aims to estimate the production costs for the different jobs included in specific customer orders. In organizations that treat each job as a single output, or when several products are produced within a certain period of time, this type of costing system is most relevant (Garrison, Noreen, & Brewer, 2008 and Atkinson, Kaplan, & Young, 2005). Materials, labor hours, and machine hours will fluctuate from one product and one order to the next, and may differ further depending on the demand placed on the overhead within. A customized part is one example of a specific customer or work order that will require greater support resources than a general production activity. If a manufacturing organization were to produce a home computer designed and patented by another organization, it may require some re-engineering process, the use of materials not used in general production, or additional change elements such as a different product logo, etc. in such a case, management wants to be sure that the specific order reflects all relative costs, otherwise the product cost information will not be accurate. In the case of a company manufacturing many types of computer chips within a certain period of time, the use of a constant order system would also be appropriate so that management would want to fully recognize the actual costs incurred by each product.
Accurate production keeping cost records in a production organization Accurate production becomes more complex when compared to organic produce delivery. one thing Different factors different products eventually incur incurring costs and consume resources to varying degrees, requiring separate product costs and/or service costs to properly manage records for efficient operations (Garrison, et al.). Using a job cost sheet to track the flow of costs for each job or customer order, the job order accounting system uses a concept similar to the inventory concept to maintain detailed records of all associated costs beginning with raw materials inventory, to work in process inventory, and ending with goods. After the goods are completed and sold to the customer, the purchase costs are recorded as expenses. This job specific information is especially useful for management when it comes to ordering or providing a quote. product in any volume, or how customized production affects the costs of both the organization and the customer (Atkinson, et al.).
When the new computer memory is introduced, the bill of materials will be required to indicate all the essential direct. material work to complete one. The booklet provides starting materials that provide cost and course information for a specific order. When the prospective costs are made, the production order is taken out and the material requisition form provides the exact quantities and types of the right materials needed and also provides information to be shared that needs to be loaded with different materials. The purpose of the materials requisition forms is not only to control the flow of materials to production, but to ensure that the correct materials are ordered and listed in the correct order. Direct labor is handled in a similar way, labor charges that are easily divided into a certain order, written on the job sheet and charged to the appropriate order. Those who work for wages that do not so easily contribute to a specific job have become part of the manufacturing overhead. Each table separates the total hours worked by order and specific job to provide accurate cost information by job and provide necessary financial information for future planning and evaluation (Garrison, et al.).
Overhead charges are a bit more complex to assign, as they are generally not direct. Further complicating the deduction of accurate overhead cost allocation is the fact that overhead costs are relatively expensive and consist of many individual activities, such as supplies and labor needed to maintain a technical machine or pay for treatment. Allocation of overhead costs requires determination of the allocation base or cost driver. A cost driver is a quantity, a job-related item that drives overhead costs. The cost driver is the main variable in the production that influences the cost (Horngren, Datar, & Foster, 2006). In instances where direct labor resources account for most of the overhead costs, direct labor hours are generally used as a driver. However, in the case where the product design, machinery, machine hours or materials involved more overhead costs associated with a specific product or customer order, then those items should be evaluated relatively as cost drivers. A fixed capital ratio is commonly applied to the appropriate overhead costs for a given period. The predetermined overhead rate represents the total manufacturing overhead cost divided by the cost allocation base estimate or cost driver. This only provides an estimate, for the period, and is further aggregated to pertain to each job order by dividing the predetermined overhead rate by the amount of the allocation base incurred within the specific orders (Garrison, et al. and Winicur, 1993). . When the job sheet is complete, all direct materials, labor and manufacturing overhead are appropriately transferred, per product cost can be calculated by dividing the total job cost, which is reflected on the job sheet, by the number of products (Garrison, et al. .).
When a single product is produced in large quantities over an extended period of time, process costing is more relevant to choice than product costing. Like a job order costing system, a process costing system provides per-unit, or per-product costing of direct costs as well as manufacturing overhead. Many products that are mass produced are sold on a one-to-one basis, and in large-scale production, a small change in a constant significant per-unit total change makes proper per-unit cost allocation imperative for pricing, scheduling, and controlling costs. (White, 2006). Process costing is similar to an order in which the cost per unit is derived by dividing the total manufacturing costs by the total units produced, only process costing does this for a single product over a given production period, while job costing does this over a lifetime. to the proper order of duty. The same basic costs are used in both systems, including direct labor, direct materials, manufacturing overhead, and the same types of inventory, raw materials, work in process, and finished goods. Although the same cost data is used, process costing has no use for defining individual orders and unit costs per department (Garrison, et al.).
The manufacturing process associated with a single product in production for a given period is broken into different parts. The number of processes required to make a specific product is not required, as the activity in each process is applied to all units. The costs incurred during production are brought back to the various process departments, which are opposed to many factory orders, whose cost investigations are less complex than those operating in the order of the costing system. Each department has its own work in the accounting process and finished products leaving one department to work on the next class within the whole process. Direct and indirect costs can be added at each part of the manufacturing process to provide cumulative cost information and measure progress (Garrison, et al.).
The materials requisition form is also used in the process of purchasing materials for production and keeping a record of direct material costs and direct labor hours related to specific productions. Fixed overhead rates, such as those payable in the trade, are generally used in the process of costings within each part as the product moves to the manufacturing process. As the product is completed, it moves through all the production departments and finally ends up in finished goods as the accumulated costs are charged to the purchased goods (Garrison, et al.).
Unit costs cannot be derived from each department’s accumulated production costs without determining the product output by department. Different departments typically have units that have not yet been fully processed, and I need to calculate accurate per-unit cost information efficiently for all units. The figure used to account for partially completed units of work and their percent completion is called equivalent units. The unit figure shares the number of units that could have been completed from the materials and the partially assembled units remaining constant at a given time of calculation or allocation. The equivalent figure unit can be taken in several ways: by multiplying the number of parts of the finished product by the percentage of completion or by using the weighted average method. When costs are calculated per equivalent unit, these costs include units in ending inventory and units in transportation between different production departments. The equivalent units are multiplied by the equivalent unit cost, then allocated to each category of inventory costs (Garrison, et al.).
As with all considerations of the mandatory accounting process, the goal is to add value to the organization of its processes and selection. the cost of the product must be consistent with the principle of added value. The impact of support and resources required by each choice in the cost system will play a role in the decision process.
Atkinson, A.A., Kaplan, R.S., and Young, S.M. (2005). Management systems: custom ed. Pearson Custom Publishing. Pearson Prentice Hall. Boston, MA.
Guardians, R.H., Noreen, E.W., and Brewer, P.C. (2008). Breviary Breviary, 12e. McGraw-Hill Irwin. Boston, MA.
Horngren, C.T., Datar, S.M. and Foster, G. (2006). Cost accounting: director’s emphasis, 12e. Pearson Prentice Hall. Upper Horse River, NJ.
White, M. (2006). Chapter 18: Process costs. Middle City Online Accounting Tutorial. Fulton, MO. Retrieved June 8, 2008, from http://www.middlecity.com/ch18.shtml
Winicur, B. (May, 1993). The order of Job was marketed. Public Accountant. May, 1993
Retrieved on June 8, 2008, from the Internet
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