Discussion Topic: Job Order Costing Systems
Read Concepts in Action: “The Job Costing ‘Game Plan’ at AT&T Stadium” in Chapter 4.
Discuss job order costing system. Be sure to address the following:
- Briefly explain job order costing.
- What are the characteristics of the companies that would use job order costing?
- Describe normal costing vs. actual costing.
- What characteristics of AT&T Stadium made the construction project a good candidate for job order costing?
just do response each posted # 1 to 3 down below only
Job costing is when the cost object is a unit or many units that make up a distinct product or service. Typically the product or service is a single unit. There are many examples of companies that would use job order costing in the service, merchandising, and manufacturing sectors. The service sector would include movies produced by Universal Studios. The merchandising sector would include a special promotion of Walmart’s new products. Boeing assembling their airplanes is an example of the manufacturing sector. Normal costing will trace direct costs to an object by using direct-cost rates multiplied by the actual quantities of the inputs and it will allocate indirect costs based off of a budgeted rate multiplied times the actual quantities. Similar to normal costing, actual costing traces direct costs to objects in the same way, but actual costing uses actual rates not a budgeted rate for their indirect costs. The AT&T Stadium had 5 stages during it’s completion. At each stage the actual costs were tracked of direct materials, direct labor, and overhead costs. They then compared these costs to their budgeted costs so they could evaluate how they were managing these expenses. Had it not been for the disciplined job costing used the Manhattan Construction Company would not have turned a profit on the construction of this stadium. (Datar, 2018)
Job order costing simply is a specific cost to complete a job. This may contain more than one product resource to complete a single unit or combining several costs to have a service done. For example, build a treehouse, repair a car, or lawn care service, etc. (Datar & Rajan, 2017, p.110).
Manufacturers normally use the job order costing system to record expenses for each job or each unit of the product that includes direct and indirect labor, materials, and overhead costs. Other businesses such as law firms, accounting services, medical services, retail companies, movie studios, etc. may use the job order costing system to monitor costs to fulfill customer orders. In other words, job order costing is used in the company that needs each unit cost to be accounted for separately.
Both actual and normal costing methods are used in businesses to evaluate production costs. It depends on the company that wants to choose the appropriate method to fit its needs. Like its name, actual costing method, it accounted for the actual direct material, labor, and overhead costs incurred in the production for each job. On the other hand, the normal costing method also uses the actual costs of material, labor, but instead of using the actual overhead, the predetermined or budgeted overhead cost is used.
Building a stadium is not a simple project. It took the construction company 3 years to complete and went through five different stages from conceptualization to finalization and delivery. Imagine, there was so much cost that happened during that period. If the costs were not traced appropriately, it would be difficult to separate and get an accurate result for each stage. The job costing system did a great job to track the actual direct material, labor, and overhead costs that help the company to manage and stay on budget (Datar & Rajan, 2017, p.116).