ACC 350 Week 4 Discussion

Professor and Class, A job-costing system accumulates costs incurred according to specific

jobs. Companies use this system to identify separate products or when they produce goods for customer's particular needs. Job costing systems record revenues and costs for unique products (1). These products can be easily distinguished from other products. Each product has different materials and labor requirements. Being able to keep track of the revenues and costs for each job is essential to management to assess the profitability of the job as well as be able to identify unexpected changes such as increases in prices of materials. In a job-costing system, product costs flow through three different inventory accounts, Raw Materials, Work in Process, and Finished Goods (2).

Each inventory account starts with a beginning balance at the start of the accounting period (2). Throughout the period, when additional inventory is purchased, the new inventory amount is added to the beginning balance to calculate the total inventory that is available for use, and the total represents the cost of the inventory that is used during the period.

When raw materials are purchased, they get recorded in the inventory account— for example, a $3000 inventory purchase on Apr 10. The journal entry would be:

Apr 10 Raw materials inventory 3,000 Accounts payable 3,000 Assuming the beginning balance for the raw materials inventory was $30,000, the

T-account would be as follows: Raw Materials Inventory Accounts Payable Beg. Bal. 30,000| | Beg Bal XXX (Apr 10) 3,000| | 3,000 (Apr 10) The next step is to move the raw materials into production. A journal entry is

recorded to reflect the amount placed into production. Let's say that $500 of inventory is moved into production. The journal entry would look as follows:

May 1 WIP Inventory 500 Raw Materials Inventory 500 The flow of the direct materials from one account to another is further reflected in

the T-accounts. A materials requisition form is used to track the materials that are taken out of the raw materials inventory to use in production (2). The materials that are charged to work in process are a representation of direct materials for specific jobs. The

work in process account summarizes all of the costs that are on the job cost sheets of the jobs that are in process (2).

The balance in the work in process inventory account is continuously updated as the job costs are recorded. The production cycle starts with raw materials being transferred to work in process, moving through production, and ending as finished goods inventory (3). After the completion of each job and overhead has been applied, the product is then transferred to the finished goods inventory. This is where it will stay until sold. The costs of the jobs are summarized and transferred as each job is transferred. The job cost sheet is completed to show the actual production cost of the product and the sales price of the items produced (3).

Rebekah 1. https://saylordotorg.github.io/text_managerial-accounting/s06-how-is-job-costing-used-to-tra.html 2. Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial accounting (16th ed.).

Boston, MA: McGraw-Hill 3. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/use-the-job-order-costing-method-to-

trace-the-flow-of-product-costs-through-the-inventory-accounts/