Question

we introduce the two main types of accounting systems for a manufacturing operation, job order costing and process costing. discuss job order costing and the basis for charging materials and labor to jobs as well as overhead and how it is allocated to the product.

Answer 1

There are two types of accounting systems. It is the method which gives the best matches the flow of work in their business. These are used to allocate production cost, labor, material and overhead cost.

Job order costing: each work is divided in to jobs and each job tracked and evaluated separately.

Process costing: a large quantity of similar and identical products are mass produced.

Job order costing system:

In a job order costing system, direct material cost and direct labor cost are usually traced directly to jobs. Overhead is used to jobs using a fixed or predetermined rate. Actual overhead cost which is incurred are not traced to jobs.

Material cost:

A job is started and the materials that will be required to complete the job are withdrawn from the store or godown. The document that authorizes these withdrawals and that specifies the types and amounts of materials withdrawn is called the materials requisition form. The materials requisition form identifies the job to which the materials are to be charged. Care must be taken when charging materials to distinguish between direct and indirect materials.

Labor cost:

Labor costs are recorded on a document called a time sheet or a time ticket. Each and every employee records the amount of time he spends on each job and each task on a time sheet. The time spent on a particular job is considered direct labor and its cost is traced to that job. The cost of time spent on other tasks, not traceable to any particular job, is usually considered part of manufacturing overhead.

Overhead cost:

Overhead cost includes all manufacturing costs incurred that are not traced to a specific job. In practice, overhead cost usually consists of all manufacturing costs other than direct materials and direct labor. Since overhead costs are not traced to jobs, they must be allocated to jobs if absorption costing is used.