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Job-Order Costing System Processes

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  • 0:03 Job-Order Costing…
  • 0:56 Cost of Direct Materials
  • 2:04 Cost of Direct Labor
  • 3:04 Cost of Manufacturing Overhead
  • 4:18 Job Cost Sheet
  • 5:09 Lesson Summary
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Lesson Transcript
Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

In a job-order costing system, the product being manufactured is unique, and its costs can be separately identified and tracked. In this lesson, you'll learn how costs are tracked.

Job-Order Costing System Processes

Isabella So is the owner of the Wedding Shoppe, a store that designs and manufactures custom-made wedding dresses. Each dress is unique and requires different amounts and types of materials and trimmings. Isabella's business is profitable, but she would like a more formal way to keep track of the amount of material she is using so she knows how much to order. She also wants to get a better idea as to how much time her seamstresses are spending on sewing and finishing the orders. In a job-order costing system, the following costs must be tracked separately:

  • Direct materials
  • Direct labor
  • Manufacturing overhead

Manufacturing overhead represents an allocation of costs to each manufactured item for expenses that are not project-specific. For example, Isabella must pay monthly rent and utilities on her production facility. She allocates a portion of the total cost incurred for these items to each project that is worked on during a particular period of time.

Cost of Direct Materials

When Isabella meets with a bride and finalizes the dress design, she must determine the amount and nature of materials that are required to complete the project. Once this has been determined, one of Isabella's seamstresses receives the order and completes a materials requisition form. The materials requisition form provides the following information:

  • Quantity and description of materials needed
  • Item number of materials required
  • Cost per unit
  • Total cost (or cost per unit x quantity)
  • Customer name and job number
  • The name of the individual who completed the requisition, and
  • The name of the employee who approved the costing for the order

Let's assume that Isabella meets with a customer, Mary Belle, to finalize the design for Mary's dress. Isabella must then meet with her seamstress, Ms. B. White, to discuss the details. Ms. White completes a materials requisition form and provides it to Ms. I. Count to be costed. Let's examine the materials requisition form for Mary's dress.

Material Requisition Form

We can see that four different items are needed to construct the dress and the total cost of these items or, raw materials, is $420.

Cost of Direct Labor

Since Ms. White, Isabella's seamstress, works on a number of projects every day, she must track how many hours she spends on each project. This tracking is captured on a time ticket or an employee time ticket and can be maintained manually (on paper) or on a computerized system. The time ticket contains the following information:

  • Name of employee
  • Employee number
  • Job number
  • Date
  • Start and stop times of hours worked
  • Total number of hours worked
  • Hourly rate
  • Total cost
  • Supervisor approval

Ms. White's time ticket for May 4th would appear as follows:

Time Ticket

We can see that Ms. White worked on Mary's dress for six hours on May 4th, and her hourly rate is $15. The ticket also shows us that Isabella has approved the number of hours for this day. If we were to examine all the time tickets for Ms. White's work on Mary's dress, we would see that she worked a total of 14 hours between May 4th and May 25th at a total cost of $210.

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