Job Order Cost System.docx - University of Wasit College of...

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University of Wasit College of Administration and Economics Department of Accounting Master Accounting Job Order Cost System Introduction to: Dr. Abbass Nawar By the student : Salar Aziz Barak
Job Order Cost System The product order system is based on the principle of allocation, that is, the allocation of cost elements spent on production orders. The production order system is applied in industries that produce different products that are similar and depend on their specifications on customers' requests. Moreover, the industries that produce large, shipbuilding, and aircraft manufacturing cards are designed as the production orders card to determine the cost of each production order . Accumulating Manufacturing Costs To illustrate a job order cost system, we will use the January transactions of Wallace Manufacturing Company, which makes machine tools . RAW MATERIALS COSTS When Wallace receives the raw materials it has purchased, it debits the costs of the materials to Raw Materials Inventory . The company would debit this account for the invoice cost of the raw materials and freight costs chargeable to the purchaser . It would credit the account for purchase discounts taken and purchase returns and allowances. Wallace makes no effort at this point to associate the cost of materials with specific jobs or orders . To illustrate, assume that Wallace Manufacturing purchases 2,000 handles ) Stock No. AA2746) at $5 per unit ($10,000) and 800 modules (Stock No. AA2850 ( at $40 per unit ($32,000) for a total cost of $42,000 ($10,000 1 $32,000). The entry to record this purchase on January 4 is : FACTORY LABOR COSTS In a manufacturing company, the cost of factory labor consists of three costs: (1 ( gross earnings of factory workers, (2) employer payroll taxes on these earnings, and ) 3 ( fringe benefits (such as sick pay, pensions, and vacation pay) incurred by the employer. Companies debit labor costs to Factory Labor as they incur those
costs . To illustrate, assume that Wallace Manufacturing incurs $32,000 of factory labor costs. Of that amount, $27,000 relates to wages payable and $5,000 relates to payroll taxes payable in January. The entry to record factory labor for the month is : MANUFACTURING OVERHEAD COSTS A company has many types of overhead costs. It may recognize these costs daily as in the case of machinery repairs and the use of indirect materials and indirect labor. Or , it may record overhead costs periodically through adjusting entries. Companies record property taxes, depreciation, and insurance periodically, for example. This is done using a summary entry , which summarizes the totals from multiple transactions Using assumed data, the summary entry for manufacturing overhead in Wallace Manufacturing Company is : Example During the current month, Ringling Company incurs the following manufacturing costs : ) a) Raw material purchases of $4,200 on account , . .

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