VI. THE MECHANICS
OF JOB COSTING
Job costing is cost accounting method, and as such when using
it or adopting it in a company, we are required to follow a set of procedures
for the recording of the various transactions in the company.
This recording can be made using either an interlocking or an
integrated cost accounting system. An integrated cost accounting system is one
in which the financial and cost accounts are combined in one set of accounts.
In an interlocking cost accounting system, the financial and cost accounts are
maintained independently. As stated by Drury (1992), it is better to adopt an
integrated cost accounting system as this permits to avoid the duplication of
records.
In job costing, the basis for the recording of transactions is
a set of control accounts. A control account is a summary account where entries
are made from totals of a period's transactions; these totals come from the
individual accounts where the transactions are primarily recorded and these are
called subsidiary ledger accounts. In addition to posting these transactions in
the various accounts concerned, we will have to post them on a Job cost card or
job cost sheet.
The job cost sheet is a form prepared for each separate job
that records the materials, labour and overheads costs charged to the job.
The accounting procedures and mechanics of job costing will be
examined following the various steps involved in the manufacture of a product
by a manufacturing company, that is from the purchase of raw materials to the
selling of the finished goods, passing through the charging of labour and
overhead costs, Drury (1992) and Garrison & Noreen (2003).
1. Purchases of raw
materials
Following the double entry principle and the other rules of
financial accounting, if raw materials are acquired, this represents an
increase in current assets but also an increase in the level of current
liabilities until cash payment is made; this transaction will then be recorded
as such:
Dr stores ledger control
account......................******
Cr creditors control
account..................******
2. Issue of raw
materials
This transaction occurs when materials are needed in the
production department, the production department will request a particular
quantity of materials using a material requisition form on which the job number
will be specified. This form will be presented to the storekeeper, who in turn
will supply the materials requested.
Dr Work in progress
account.................*****
Cr stores ledger
account..............*****
The work in progress account represents the products that are
not yet completed and until a good is complete it is considered as part of the
work in progress stock and all the items entering in its production should be
posted on that account.
The above record concerned the issue of direct materials, if
some indirect material is issued, then the following record should be used:
Dr Factory overhead control
accounts...........*****
Cr stores ledger control
account.........*****
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