Question

BTN 19-4 Assume that you are preparing for a second interview with a manufacturing company. The company is impressed with your credentials, but it has several qualified applicants. You anticipate that in this second interview, you must show what you offer over other candidates. You learn the company is not satisfied with the timeliness of its information and its inventory management. The company manufactures custom-order holiday decorations and display items. To show your abilities, you plan to recommend that the company use a job order accounting system.

Required

In preparation for the interview, prepare notes outlining the following:

Your recommendation and why it is suitable for this company.

A general description of the documents that the proposed system requires.

How the documents in part 2 facilitate the operation of the job order accounting system.

Answer 1

Job order costing or job costing is a system for assigning manufacturing costs to an individual product or batches of products. Generally, the job order costing system is used only when the products manufactured are sufficiently different from each other. Job order costing records the actual materials and labor expenses for specific jobs, and assigns overhead to jobs at a pre-determined rate.

Since there is a significant variation in the products manufactured, the job order costing system will create a job cost record for each item, job or special order. The job cost record will report the direct materials and direct labor actually used plus the manufacturing overhead assigned to each job.

Advantages of Job Order Accounting System:

Assigning Costs

One advantage of job order costing is that it allows managers to calculate the profit earned on individual jobs, helping them to better ascertain whether specific jobs are desirable to pursue in the future. This is best for businesses that do highly custom work, such as construction contractors and consultants.

Reporting

Job order costing gives managers the advantage of being able to keep track of individuals' and teams' performance in terms of cost-control, efficiency and productivity.

Unit Cost Calculation

Job order costing are adequate to determine the average cost of each unit produced.

Documents required:

Job cost sheet. This is used to track the job number; customer information; job information (date started, completed, and shipped); individual cost information for materials used, labor, and overhead; and a total job cost summary.

Materials requisition form. To assure that materials costs are properly allocated to jobs in process, a materials requisition form is usually completed as materials are taken from the raw materials inventory and added to work?in?process.

Time ticket. Labor costs are allocated to work?in?process inventory based on the completion of time tickets identifying what job a worker spent time on.