Job Costing System Narrative

Tanya Tran

Chien-Ming Chen

Hsi-Yun Lee

Wing Yee Lee

ACC 305

Job Costing System Narrative for Production

In this flowchart the company keeps track of labor and material in production. Time cards and labor tickets are received from the production department and input with verification. Time cards represent both direct and indirect labor costs. The information is keyed-in and saved to the production labor transaction file. The payroll department will later use the data to pay the workers.

Materials requisitions, which include both direct and indirect materials, are keyed in with verification. Information is processed by the system and saved in the materials issuance transaction file. Materials requisitions contain information about the cost of direct and indirect materials used on a specific job and in a specific department. The data is used to create the materials issuance transaction file. This transaction file and the production labor transaction file are then merged to form the production cost transaction file. Information on this file indicates all the actual costs that the company has incurred in production. From here, two separate reports are produced: the materials and labor usage report and the scrap and lost time report. The materials and labor usage report presents the actual costs of production materials and labor. The scrap and lost time report will tell the users whether the company is using the materials and labor efficiently. Scrap is excess material that may be sold or recycled; lost time is lost production time from machine break down or employee injury.

The production cost transaction file is then used to process cost distribution. This file includes both the direct and indirect actual production cost. Direct actual production cost, (direct material and direct labor), are entered into the open job file, which is the work-in-process file for a job order costing system. The indirect actual production cots are saved in the actual manufacturing overhead file. From the manufacturing overhead file and the budgeted cost file, (called the standard cost file), the computer process allocates the overhead (overhead application process) and prints out an overhead residual analysis (unapplied overhead). The computer processes the overhead application to add overhead cost to open jobs in the open job file. The open job file is used to display screen and printed job status reports.

Lastly, the computer uses the production cost transaction file (all actual costs) and the standard cost file to produce the standard cost variance analysis and print out the standard cost variance report. This analysis allows management to evaluate how efficiently labor and materials are being used in the production process by comparing actual use to budgeted or standard.