Question

You work in a bakery making baked goods, such as customized cakes. In 2-3 paragraphs, how can job-costing could be applied? Talk about the set-up, operation, and output of your example.

Answer 1

Job costing can easily be applied in case of a bakery that makes customized cakes and other baked goods on order. This is because in case of job costing a track of cost of each job is kept. Each type of product will be considered unique and hence expense will be tracked with regards to creating that unique product.

The set-up for job-costing in a bakery will include proper books of accounts in which all relevant costs for a specific product is kept. The relevant costs will be direct labor, direct materials and overhead. The operation will be that costs will stay in work-in-process account while a particular type of good is being baked. When a particular type of good is finally baked and completed then it is transferred to finished goods account. The output will be that the bakery will have a track of costs for each order by using the job costing method. This will also enable the bakery to add margins on the determined costs and earn a suitable level of profit.

The bakery will be able to track specific costs to individual cake orders and the cost data can later be examined easily to see in what ways the costs can be reduced in later orders that the bakery will receive. Also the bakery can easily bill any excess cost directly to the customer.