IP CHP 19.odt - CHAPTER 19 JOB ORDER COSTING Job order...

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CHAPTER 19: JOB ORDER COSTINGJob order productionEach customized product is manufactured separately and its production is called job order production, or job order manufacturing. Examples of job order production include such products as custom built homes, and invitations – such as for weddings, parties, orconventions. Production activities for a customized product represent a job. Many companies produce products individually designed to meet the needs of a specific customer.Boeing's aerospace division is one example of a job order production system. Its primary business is twofold: One is to design, develop, and integrate space carriers, and two is to provide systems engineering and integration of Department of Defense systems. Many of its orders are customized and produced through job order operations.When a job involves producing more than one unit of a custom product, it is often called a job lot. Products produced as job lots include imprinted T-shirts and baseball caps for a company picnic, or advertising signs for a chain of stores. Although these orders involve more than one unit, the volume of production is typically low, such as 200 T-shirts, 50 caps, or 100 signs.Process operations, also called process manufacturing or process production, is the mass production of products in a continuous flow of steps. Unlike job order production, where every product differs depending on customer needs, process operations are designed to mass-produce large quantities of identical products.Let's now look at an overview of production activities in a job order setting. Job order production in a manufacturing setting requires materials along with labor and overheadcosts. Recall that direct materials are goods used in manufacturing that are clearly identified with a particular job. Similarly, direct labor is effort devoted to a particular job. Indirect materials and indirect labor are added to the overhead costs. Other overhead costs support production of more than one job. Common overhead items are depreciation on factory buildings and equipment, factory supplies, indirect materials, supervision and maintenance (indirect labor), cleaning, and utilities.During the course of a period, production is undertaken, which is known as work in process. We see that materials and labor are added to different jobs, which have all begun production. Total overhead cost is also added to the various jobs. At period's end,some work remains unfinished, whereas other jobs have been completed and are transferred to finished goods. Finally, some or all of the finished jobs are transferred to cost of goods sold as they are delivered to customers per their agreements with the producer.Because they are product costs, manufacturing costs flow through inventory accounts (Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory) until the related goods are sold. While a job is being produced, its accumulated costs are kept in Work in Process Inventory. When a job is finished, its accumulated costs are transferred from Work in Process Inventory to Finished Goods Inventory. When a

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