Question

	Describe the flow of costs in a "Job Oder Cost System" and explain the use of a job cost sheet in accounting for material, labor and overhead costs.

Answer 1

Flow of costs in Job Order cost system

The flow of costs in job order cost accounting parallels the physical flow of the materials as they are converted into finished goods. There are two major steps in the flow of costs:

a) accumulating the manufacturing costs incurred and

b) assigning the accumulated costs to the work done.

Accounting for material, labor and overhead costs

No effort is made when costs are incurred to associate the costs with specific jobs.The assignment of manufacturing costs involves entries to work in process inventory, Finished goods inventory, and cost of goods sold. The cost of raw materials purchased are debited to Raw materials inventory when materials are received. Factory labor costs are debited to Factory labor when they are incurred. Manufacturing overhead costs are recognized daily as incurred and periodically through adjusting entries. The costs are debited to Manufacturing overehead.

The assignment of manufacturing overhead costs to work in process involves debits to work in process inventory and credits to raw materials inventory, Factory labor, and manufacturing overhead.

Job Cost Sheet

A job cost sheet is a form used to record the costs chargeable to a specific job and to determine the total and unit cost of the completed job. A seperate job cost sheet is kept for each job. A subsidiary ledger consists of individual records for each individual item. The work in process account is referred to as control account because it summarizes the detailed data regarding specific jobs contained in the job cost sheets. Each entry to work in process inventory must be accompanied by a corresponding posting to one or more job cost sheets.