JOB ORDER COSTING

A job order costing system is a system that traces the costs of a specific order or batch of products to provide timely, accurate cost information and to facilitate the smooth and continuous flow of that information. A basic part of a job order costing system is the set of procedures, electronic documents, and accounts that a company uses when it incurs costs for direct materials, direct labor, and overhead.
Job order cost cards and cost flows through the inventory accounts form the core of a job order costing system.

Materials
When Augusta receives or expects to receive a sales order, the purchasing process begins with a request for specific quantities of direct and indirect materials that are needed for the order but are not currently available in the materials storeroom. When the new materials arrive at Augusta, the Accounting Department records the materials purchased by making an entry in journal form that debits or increases the balance of the Materials Inventory account and credits either the Cash
or Accounts Payable account (depending on whether the purchase was for cash or  credit):                   
                                                          Dr.                 Cr.
Materials Inventory                      XX
        Cash or Accounts Payable                          XX
When golf carts are scheduled for production, requested materials are sent to the production area. To record the flow of direct materials requested from the Materials Inventory account into the Work in Process Inventory account, the entry in journal form is:
                                                                Dr.            Cr.
Work in Process Inventory                XX
           Materials Inventory                                XX
To record the flow of indirect materials requested from the Materials Inventory account into the Overhead account, the entry in journal form is:
                                                          Dr.             Cr.
Overhead                                       XX
    Materials Inventory                                   XX


Labor
Every pay period, the payroll costs are recorded. In general, the payroll costs include salaries and wages for direct and indirect labor as well as for non production-related employees. As noted earlier, Augusta’s two production employees assemble the golf carts. Several other employees support production by moving materials and inspecting the products. The following entry in journal form records the payroll:
                                                                   Dr.          Cr.
Work in Process Inventory                  XX
Overhead (indirect labor costs)          XX
Selling and Administrative Expenses  XX
salary and wage costs)
                         Payroll Payable                             XX

Overhead
Thus far, indirect materials and indirect labor have been the only costs debited to the Overhead account. Other actual indirect production costs, such as utilities,property taxes, insurance, and depreciation, are also charged to the Overhead account as they are incurred during the period. In general, the entry in journal form to incur actual overhead costs appears as:
                                                     Dr.             Cr.
Overhead                                 XX
     Cash or Accounts Payable                     XX
     Accumulated Depreciation                    XX
During the period, to recognize all product-related costs for a job, an overhead cost estimate is applied to a job using a predetermined rate. The entry in journal form to apply overhead using a predetermined rate is:
                                                         Dr.      Cr.
Work in Process Inventory         XX
                Overhead                                  XX
Based on its budget and past experience, Augusta currently uses a predetermined overhead rate of 85 percent of direct labor costs.