Managerial Accounting For Dummies

Chapter 7

Job Order Costing: Having It Your Way

In This Chapter

Organizing the documentation for a job order cost system

Applying direct materials and direct labor to jobs by using the debit-credit system

Accounting for overhead in a job order cost system

Looking for a teddy bear? Most people would go no farther than their local drugstore or big-box discount store. There, they can usually choose from a few different colors and sizes in order to find the bear they like. Drugstore bears are usually manufactured on assembly lines, often in batches of thousands of identical bears. To measure the cost of the products made, companies use process costing, which I cover in Chapter 8.

More-discriminating bear aficionados, however, have their teddy bears made to order. This way, they can choose their bears’ size, fur color, eye color, paw pads, and even tattoos. They can also choose from a wide selection of clothing or have clothing made to order in any theme they can imagine. When craftspeople sew and assemble these custom bears, they use a system called job order costing to track the exact cost of each bear.

Information about product cost helps managers to set and adjust prices and to ...