Job order costing accumulates and records costs by job and assists managers in evaluating actual and expected costs related to direct materials direct labor and factory overhead costs.
An excellent example is provided in the opening vignette of the textbook for this chapter Washburn Guitars. A job order cost system is ideal due to the nature design and uniqueness of each guitar built for a musician such as Paul Stanley from the rock band KISS. Costs associated with the creation of a guitar include direct materials such as wood and strings direct labor of the employees who build assemble and test the guitar. Additionally the factory overhead costs such as the plant where the guitar is manufactured the insurance on the plant taxes and all other indirect costs. After the costs are accumulated for Mr. Stanley’s guitar Washburn Guitars would then price the guitar to achieve a profit (selling price greater than the costs).
Select a company that would employ a job order costing system. Research the company and discuss why a job order costing system is the ‘correct’ fit for that organization. Discuss a product the company sells and discuss what direct and indirect costs would be included on the job cost sheet.
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