We have learned that job order costing records the actual materials, labor, and overhead costs for specific jobs and assigns pre-determined overhead rate to them. This kind of costing is perfect for the type of business that does custom works, producing limited quantities of goods or services that depend on consumers’ demands and specifications, such as construction contractors and healthcare services. Job order costing makes it possible for the business owners to calculate the profit earned on individual jobs and to determine whether or not the jobs are desirable to pursue in the future. Another advantage of job order costing is this costing system also allows managers to keep track of their employees’ cost-control, efficiency, and productivity, both individually and as a team.
However, apart from its advantages, job order costing also has its disadvantages. In job order costing, all the materials, labor, and overhead costs used in finishing a job must be able to be accurately identified, making the record-keeping more troublesome compared to other costing technique, such as process costing. Job order costing involves several key documents, such as job cost sheet that records materials, labor, and overhead costs charged to job, as well as time tickets that records time workers spend on each job and task.
Fortunately, information technology can help simplify the complicated record-keeping that is required by job order costing system. An example of the technology that can be used is barcode technology. This technology can be used to scan and record the actual materials and the labor hours used and spent in manufacturing a product or providing a service. By using barcode technology, the complexity of the record-keeping can be reduced, thus improving its accuracy. The use of barcode technology is improved with the help of another technology called XML (Extensible Markup Language). XML works by adding tags to information, such as prices and customer orders, giving them a form of readable identification so that the company’s computer system can display, store, and retrieve the information as needed.
Let’s see how barcode technology and XML work together to simplify job order costing in a manufacturing company. The process starts as an electronic customer order is accepted in the form of an XML file. After reading the tag attached to the order, the computer creates a list of all the materials needed by the customer order and then sends electronic purchase orders to the suppliers, giving them written information regarding the name, quantity, unit of measurement, agreed price, and consignee address of the materials, as well as the exact date on which they should be received.
In order to update the inventory records and alert the finance department to prepare payment to suppliers based on the agreed terms, barcodes should be assigned to the materials. The barcodes can either be provided by the suppliers or given by the buyer upon their arrival at the company’s plant. Once the materials arrive, the barcodes are scanned and the Raw Materials Inventory account is debited. When the materials are about to be used for production, the barcodes are scanned again, resulting in the computer system crediting the Raw Materials Inventory account and debiting the Work-In-Process (WIP) Inventory account.
A barcode is also added to each job done throughout the manufacturing process of a product. The scanning of the barcode assigned to each task allows the company to record and include the labor hours and overhead costs spent on a specific job. Once a job is finished, another barcode scan is done to transfer both the quantity of goods completed and all the costs charged to them from the WIP Inventory account to the Finished Goods Inventory account. When the products are ready to be shipped to the customers, it takes another barcode scan to credit the Finished Goods Inventory account and debit the Cost of Goods Sold (CoGS) account.
To sum it all up, barcode technology and XML work hand in hand to reduce the amount of manual paperwork required by job order costing by switching to electronic records. With this high-end technology, there will also be less error made in the record-keeping process. Surely, adopting barcode and XML technology will be costly at first, but that huge amount of money will be worth spending in the long run due to the increased efficiency and accuracy these technologies bring.
Sources:
- • Ingram, D. (2009). Advantages & Disadvantages of Job Order Costing & Process Costing. Retrieved March 11, 2013, from http://smallbusiness.chron.com/advantages-disadvantages-job-order-costing-process-costing-3082.html
- Reyes, T. D. L. (2012, January 18). The Issue of Job Order Vs Process Costing in Managerial Accounting of a Small Business. Retrieved March 11, 2013, from http://ezinearticles.com/?The-Issue-of-Job-Order-Vs-Process-Costing-in-Managerial-Accounting-of-a-Small-Business&id=6819061
- Accounting for Management. Use of Information Technology in Job Order Costing System. Retrieved March 11, 2013, from http://accounting4management.com/use_of_information_technology_job_order_costing.htm
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