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Discuss
1 Job order Costing
a. measuring direct materials cost
b. job cost sheet
c. measuring direct labor cost
d. computing predetermined overhead rates
e. computation of unit costs
f. choice of an allocation base for overhead cost
g. direct and indirect materials
h. Labor Cost
i. manufacturing overhead cost
J. cost of goods sold
Introduction
Job order costing in cost accounting is applied to a variety of products in a manufacturing or production process to determine the cost of a product per unit. Job order costing is best applied where there are different products in a manufacturing company that require separate costing (Averkamp, 2015).
A job cost sheet in cost accounting refers to a document that is used to record the costs that have been incurred or assigned to a certain job. The costs may include direct labor or material costs that have been allocated to the job. After the products have been completed, the total costs of the finished product are calculated from the job cost sheets to arrive at the unit cost of the product. The job cost sheets are used also to estimate the total products that have been sold and their unit costs. The remaining stock can also be determined from the cost sheets together with their unit costs. The cost of the remaining stock that is entered in the balance sheet can be determined directly from the cost sheets.
A predetermined overhead rate in a company is utilized to apply the various overheads to jobs that are been undertaken in a company. The overhead rate is calculated by calculating the total manufacturing overhead and dividing it by the total amount that is to be used as the allocation base. The allocation is arrived at by multiplying the actual amount that is the allocation base by predetermined rate. The commonly used allocation base is the direct labor hours.
The unit cost per product is obtained when the total cost of manufacturing a product is divided by the total number of the units produced.
The measure and choice of activity to be used as the allocation base is mostly driven by the overhead cost. The allocation base in job costing does not cause the overhead.
Direct materials are the materials used directly in the manufacturing process while indirect materials are consumed in other processes but not directly in the manufacturing process.
Direct labor costs are generally the cost of wages and other benefits that accrue to workers in a factory or in a production environment (Averkamp, 2015).
Labor cost is the cost of human labor that a company incurs in a manufacturing process. Direct labor costs are the direct costs in labor activities that were incurred directly in the manufacturing process of a particular product (Garrison, Noreen & Brewer, 2009).
Manufacturing cost is the total cost of manufacturing a product in a factory. The costs are made up of direct labor, direct material and other factory overhead costs. Manufacturing overhead costs are production costs that cannot be particularly traced a product instead manufacturing overhead costs are incurred mostly as the overall costs that are incurred by the production activities. Manufacturing overheads costs are assigned to products using different methods like predetermined overhead rates. These costs include machine maintenance costs, utilities and depreciation of factory building and equipments. These costs are also known as indirect costs (Garrison, Noreen & Brewer, 2009).
Cost of Goods sold refers to the total cost that have been incurred either to manufacture the goods in a factory or the total costs of the purchases together with all the direct expenses that were used in the selling processes.
References
Averkamp, H. (2015) What is Job Costing? Accounting Couch retrieved November 8, 2015 from http://www.accountingcoach.com/blog/what-is-job-order-costing
Averkamp, H. (2015) What is Direct Labor? Accounting Couch
Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting, New York, NY: McGraw-Hill Irwin. 65 -70
