4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
3 min read•june 18, 2024
tracks costs for specific customer orders or batches. It follows the flow of costs through raw materials, work in process, and finished goods inventories, ultimately determining the .
This system allocates costs to jobs using direct tracing and overhead allocation. It calculates the and sold, providing crucial information for pricing decisions and profitability analysis in custom manufacturing environments.
Job Order Costing System
Flow of product costs
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2.3 Job Costing Process with Journal Entries | Managerial Accounting View original
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2.1 Characteristics of Job Order Costing | Managerial Accounting View original
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2.3 Job Costing Process with Journal Entries | Managerial Accounting View original
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2.1 Characteristics of Job Order Costing | Managerial Accounting View original
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2.3 Job Costing Process with Journal Entries | Managerial Accounting View original
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Flow of Costs (Job Order Costing) | Accounting for Managers View original
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Records the cost of materials purchased for use in production
Materials requisitioned for a specific job are transferred out of this account into (flour, sugar, eggs for a bakery)
Accumulates costs transferred from and other accounts such as labor and overhead (wages for bakers, electricity for ovens)
Costs remain in this account until a job is completed (wedding cake order)
Upon completion, job costs are transferred out of this account into
Holds the costs of completed jobs transferred from work in process inventory (decorated wedding cakes ready for pickup)
Costs stay in this account until the goods are sold to customers
When goods are sold, their costs are transferred out of this account into (revenue is recognized)
Cost Allocation and Tracing
: The items or activities for which costs are measured and assigned (e.g., products, departments, projects)
: Groups of individual cost items accumulated before allocation to cost objects
: The process of assigning costs directly to a cost object when economically feasible
: Factors that cause changes in cost for an activity or cost object
: The rate used to assign overhead costs to products or services
Often calculated as a based on estimated costs and activity levels
Calculation of goods manufactured
= Beginning work in process inventory + Current period production costs - Ending work in process inventory
Beginning work in process inventory represents the cost of jobs that were started but not completed in the prior period (partially assembled products)
Current period production costs include all manufacturing costs incurred during the current period such as , , and (raw materials used, wages paid, utilities consumed)
Ending work in process inventory represents the cost of jobs that are still in progress at the end of the current period (unfinished products)
Determination of goods sold
Cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory
Beginning finished goods inventory is the cost of completed products on hand at the start of the period (unsold items from prior period)
Cost of goods manufactured is the total cost of products completed during the current period, calculated using the formula in the previous section
Ending finished goods inventory is the cost of completed products that remain unsold at the end of the current period (items awaiting future sales)
: The movement of costs through the manufacturing process, from raw materials to work in process to finished goods, and finally to cost of goods sold