1
Job Order Costing
Student’s Name
Professor’s Name
Course Title
Date
2
Job Order Costing
Particularly, the purpose of cost accounting systems is to measure, record, and report
the costs of products. Management uses such costs to set prices, control operations, and
prepare financial statements (Warren & Tayler, 2018). In this regard, job order costing is a
cost accounting system that allocates product costs for every product quantity manufactured.
The manufactured quantities are referred to as jobs. Manufacturing businesses that
manufacture batches of similar products can benefit largely from job order cost systems.
Therefore, a job order cost system helps in recording and summarizing manufacturing costs
by jobs (Warren & Tayler, 2018). The manufacturing process starts with materials inventory,
work in process, finished goods, and then the cost of goods sold. Each of these flow
processes is assigned costs using a job order cost system. Usually, machine costs are
distributed across different jobs, thus, a business can evaluate its expenditure on fixed assets,
which now helps in ascertaining the amount of overhead allocated to every asset and
appropriate it fairly between manufacturing jobs.
As detailed by Ingram (2019), the utilization of job order costing allows the
management to measure profits earned on individual jobs. This is advantageous as it helps
ascertain whether it is desirable for the manufacturing company to make the products in the
future, especially for highly custom-made products. The management is also able to
determine the value of production costs that will be used during a manufacturing process.
Furthermore, the management can accurately keep track of the performance of individuals
and teams when it comes to cost control, efficiency, and productivity. The efficient use of a
job order cost system ensures that a manufacturing business can come up with competitively
low prices and still be profitable. This means that a job order costing system is an important
tool for making data-driven decisions. As a cost accounting system, it provides a valuable
3
database that holds the details and costs of jobs, which can be utilized as empirical data for
businesses to evaluate their own efficiency and lower costs through changing processes.
The three main components of production costs are direct materials cost, direct labor
cost, and applied factory overhead cost (Warren & Tayler, 2018). The direct material costs are
incurred during the purchase of the materials used for the manufacturing process while direct
labor costs are costs of the employees who are involved in the production process. Finally,
the factory overhead costs entail any other manufacturing costs besides direct labor and
materials. These cost elements include all the expenses that are incurred during the
production of an item and, therefore, are a key component of the costs of goods
manufactured. This means that the accumulated production costs are debited into the workin-process inventory account in order to determine the costs of goods manufactured. The
management must determine the opening and closing balances of the inventory account in
addition to the actual direct material and direct labor costs, as well as the estimated
manufacturing overhead costs for the purpose of calculating the costs of goods manufactured.
4
References
Ingram, D. (2019). Advantages & Disadvantages of Job Order Costing & Process Costing.
Small Business/Accounting & Bookkeeping/Process costing. Retrieved from
https://smallbusiness.chron.com/advantages-disadvantages-job-order-costing-processcosting-3082.html
Warren, C. S., & Tayler, W. B. (2018). Managerial accounting. Cengage Learning.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
