Cap 2. Job Order Costing

Cost accounting involves the procedures for measuring, recording, and reporting product cost. From the data accumulated, companies determine the total cost and the unit cost of each product. The two basic type of cost accounting system are job order cost and process cost. Under a job order cost system the company assigns cost to each job or to each batch of goods. A company uses process cost system when it manufactures a large volume of similar products. Production is continuous. Companies can use both cost systems, the objective of both cost accounting system is to provide unit cost information for product pricing, cost control, inventory valuation, and financial statement presentation.
In job order costing, companies first accumulate manufacturing cost in three accounts: Raw materials inventory, factory labor, and manufacturing overhead. The assign the accumulated cost to work in process inventory and eventually to finished good inventory and cost of goods sold. In a manufacturing company, the cost of factory labor consists of three costs: gross earnings of factory workers, employer payroll taxes on these earnings, fringe benefits incurred by employers. A company has many types of over head cost: machinery repair and the use of indirect materials and indirect labor.
A job cost sheet is a form used to record the cost chargeable to specific job and to determine the total and unit cost of the completed job. Job cost sheets constitute the subsidiary ledger for the work in process inventory control account. The predetermined overhead rate is based on the relationship between estimated annual overhead cost and expected annual operating activity. This is expressed in terms of a common activity base such as direct labor cost. Companies use this rate to assign overhead cost to work in process and to specific jobs. When jobs are