Describe how materials flow through a job order costing system and identify the key documents in the system.

Week 2 Discussion 1 Job OrderingWeek 2 Discussion 1 Describe how materials flow through a job order costing system and identify the key documents in the system. Costing System-Sample Solution

Job Order Costing System

The job order costing system is functional and effective when customers order unique and small batches of products. The system determines the prices of each product and ensures that the cost of each product is affordable for the customers to buy while generating profits for the company. Essentially, job order costing systems track information from financial resources like overheads allocations, suppliers invoices, and material costs. The system is crucial for retail companies, medical services, film studios, and construction companies to track inventory. Health care facilities utilize job order costing to determine the amount of cash to charge individual patients. For instance, a patient who requires a check-up will need less money than one requiring surgery based on the job order costing system. Therefore, the hospital’s accounting team needs separate job order costs for the different services.(Job Ordering Sample Essay)

A job order costing system must track and capture the costs of producing each job, including the materials, manufacturing overhead, and labor. Notably, crucial documents store job order costing information. For instance, each job has a specific job cost sheet that charges costs to the job. Therefore, a job cost sheet has descriptive data or codes to identify a specific job and has spaces to enter the costs of material labor and overhead (Hilsenrath, Eakin, & Fischer, 2015). A materials requisition form bears the date the material was retrieved from the inventory, the description, the amount of the materials, and the costs. The document should mention who requested, priced, and received the items.(Job Ordering Sample Essay)

When a job starts, the material required to complete the tasks is drawn from the storeroom. In this case, a material requisition form authorizes materials withdrawal specifying the amount and types required (Hoque, 2005). The document identifies the materials to be charged for a particular job. Care should be taken to distinguish between direct and indirect materials. Direct materials are debited to the work process account, while indirect materials are debited to the manufacturing control account. A time ticket or time sheet bears information concerning the labor costs. In this case, the employees record the time taken on each task or job. The time taken to complete a specific job relates to direct labor, and the cost is traced to the job. A time sheet should have the employees’ name, ID, specific job number, a list of each job, hours taken to complete a job, total cost, and accounting/supervisors’ approval.(Job Ordering Sample Essay)

References

Hilsenrath, P., Eakin, C., & Fischer, K. (2015). Price-transparency and cost accounting: challenges for health care organizations in the consumer-driven era. Inquiry: a journal of medical care organization, provision and financing, 52, 0046958015574981. https://doi.org/10.1177/0046958015574981

Hoque, Z. (2005). Job Order Costing. Handbook of cost and management accounting, London, 61-67.