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2. Describe the flow of product costs in a job order cost accounting system 3. What is the difference between raw materials and direct materials? Give examples 4. How do you determine if labor costs related to production are direct or indirect?
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2. Flow of Product costs in a iob order Cost accounting Svstem: The job order cost system is used when products are made based on specific cusmer orders. Each product produced is considered a job. Costs are tracked by job. Services rendered can also be considered a job. For example, service companies consider the creation of a financial plan by a certified financial planner, or of an estate plan by an attorney, unique jobs. The job order cost system must capture and track by job the costs of producing each job. Which includes a. Materials: To assure that materials costs are properly allocated to jobs in process, a Materials Requisition Form is usually completed as materials are taken from the raw materials inventory and added to work-in-process b. Labor: Labor costs are allocated to work-in-process inventory based on the completion of Time Tickets identifying what job a worker spent time on c. Allocable Overheads: Factory overhead costs are allocated to jobs in process using a predetermined overhead rate. The predetermined overhead rate is determined by estimating (during the budget process) total factory overhead costs and dividing these total costs by direct labor hours or direct labor dollars Preparation of Job Cost Sheet: This is used to track the job number; customer information; job information (date started, completed, and shipped); individual cost information for materials used, labor, and overhead; and a total job cost summary The job order cost accounting process as follows At time of Processing of Joib Raw Materials, Labor Costs, Overheads ---Transferred to Work in Process After Completion of Job Work In Process -Transferred to Finished Goods Inventory3. Differences between Raw Materials and Direct Materials: Raw materials are materials or substances used in the primary production or manufacturing of goods. Raw materials are often referred to as commodities, which are bought and sold on commodities exchanges worldwide. Traders buy and sell raw materials in what is called the factor market because raw materials are factors of productio much like labor and capital There are two subcategories of Raw Materials a. Direct Materials: These are materials incorporated into the final product. For example, this is the wood used to manufacture a cabinet. b. Indirect Materials: These are materials not incorporated into the final product, but which are consumed during the production process. For example, this is the lubricant, oils, rags etc. So we can understand that Direct materials are one of the categories of Raw Materials4. Differences between Direct Labor Costs and Indirect Labor Costs: The difference between direct labor and indirect labor is that only labor involved in the hands-on production of goods and services is considered to be direct labor. All other labor is, by default, classified as indirect labor. This distinction is important from an accounting perspective, since the two types of labor are treated differently. Direct Labor: Direct labor is easy to understand and identify. Very simply, its the wages paid to employees. However, these expenses include any benefits that are provided to that employee, as well, such as healthcare. The direct costs include only the employees who will work directly on the project Support staff (human resources, administration, etc.) are categorized differently. Examples may include the following: Pipefitter, Foreman, Rigger, Laborer Indirect Labor: Indirect labor supports the company, but individuals do so from a distance. These employees are not actively involved in the construction or planning Examples of indirect labor positions include the following Administration, Human resources, Customer relations, Accountants

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