Your roommate asks your help in understanding the major steps in the flow of costs in a job order cost system. Identify the steps to your roommate.
Here is everything you will ever need to know about job order costing:
The purpose of a job order cost accounting system is to assign and accumulate costs for each job, i.e., an order, a contract, a unit of production, or a batch. Job order costing should be used if the production or service is being performed to meet customer specifications or requirements, if different components are made for inventory, or projects are undertaken to construct real property. Job order costing allows more control, less estimation, and more direct and reliable allocation of costs.
The determination as to the need for a formal job order cost accounting module is necessarily a management decision. The decision to establish such a module should be based upon a recurring need for cost accounting information. This chapter discusses how to establish a job order cost accounting module, the type of source documents required, typical management reports produced by the module, and possible uses of the reports.
A formal job order cost accounting module provides cost identification for determining the cost of accomplishing a specific task, such as the cost incurred to overhaul a truck, repair a roof, launch a test vehicle, perform an R&D project, or overhaul 100 generators. The decision to assign a job number to single or multiple units, or single or multiple tasks, depends upon the dollar value of the costs to be incurred, ...