# 33 5.3 How a Job Costing System Works

• Last updated
Dec 28, 2020
• Anonymous
• LibreTexts

## Learning Objectives

• Understand how direct materials and direct labor costs are assigned to jobs.

Question: Now that we know a job costing system records revenues and costs for each unique job, we can determine whether this type of system would be appropriate at Custom Furniture Company. Recall that Custom Furniture produces high-quality custom wood tables that are sold for between \$1,000 and \$30,000. A job costing system is a perfect fit for this type of company. How would Custom Furniture Company use a job costing system to track production costs?

Question: Recall from Chapter 1 that raw materials are the items necessary to build a product. For Custom Furniture Company, this includes items such as wood, brackets, screws, nails, glue, lacquer, and sandpaper. How do we record the purchase of raw materials?

Assigning Direct Material Costs to Jobs

Question: The next step is to move raw materials from the storeroom to production. How does the company track this information, and how is this transaction recorded in the general journal?

Using a Job Cost Sheet

Question: The next step is to post the information shown on the materials requisition form to the appropriate job cost sheet. Because the work-in-process (WIP) inventory account tracks manufacturing costs in total, a separate subsidiary ledger is necessary to track manufacturing costs for each job. The total of all WIP inventory subsidiary ledgers matches the WIP inventory account shown on the balance sheet. What does a WIP inventory subsidiary ledger look like, and how is it used?

Assigning Direct Labor Cost to Jobs

Question: Recall from Chapter 1 that direct labor is defined as workers who convert materials into a finished product and whose time is easily traced to the product or job. Manufacturing companies, such as Custom Furniture Company, must keep track of the hours each worker spends on any given job. How do companies track this information, and how is this information recorded in the general journal?

### Key Takeaway

A materials requisition form tracks materials taken out of raw materials inventory and placed in production. It identifies the

job in which the materials will be used. A timesheet tracks the hours that workers spend on each job. The information from both the materials requisition forms and time sheets is recorded on each job cost sheet. A job cost sheet accumulates manufacturing costs for each job and serves as a subsidiary ledger for the work-in-process inventory account.

## Review problem 5.2

1. Provide the journal entry to record each of the following transactions:
1. Raw materials totaling \$40,000 are purchased on account.
2. Direct materials totaling \$5,000 are requisitioned and placed into production.
3. Timesheets submitted by employees reflect direct labor costs of \$2,000, to be paid the next week.
2. Which of the previously stated entries must also be recorded on the appropriate job cost sheet? Why?

## Definitions

1. A form used to track materials taken out of raw materials inventory and placed into production.
2. A means of accumulating the manufacturing costs incurred for each job.
3. A document that workers use to track the hours spent on each job.

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