Job Order Costing - The Flow of Cost:

Learning objective of this article:

1. Understand the flow of costs in a job order costing system and prepare appropriate journal entries to record cost.
2. Apply overhead cost to work in process using a predetermined overhead rate.
3. Prepare T accounts to show the flow of costs in a job order costing system.
4. Prepare schedule of cost of goods manufactured and cost of goods sold.

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To understand the flow of costs in job order costing system, we shall consider a single month's activity for a company, a producer of product A and product B. The company has two jobs in process during April, the first month of its fiscal year. Job 1, of 1000 units of product A was started in march. By the end of march, $30,000 in manufacturing costs had been recorded for the job 1. Job 2 an order for 10,000 units of product B was started in April.

The Purchase and Issue of Materials:

On April 1, the company had $7,000 in raw materials on hand. During the month, the company purchased an additional $60,000 in raw materials. The purchase is recorded in journal entry (1) below:

(1)

Raw Materials		60,000		Dr.
	Accounts Payable		60,000	Cr.

Raw materials is an asset account. Thus, when raw materials are purchased, they are initially recorded as an asset--not as an expense.