Job order costing accumulates and records costs by job and assists managers in evaluating actual and expected costs related to direct materials, direct labor, and factory overhead costs.

An excellent example is provided in the opening vignette of the textbook for this chapter, Washburn Guitars. A job order cost system is ideal due to the nature, design, and uniqueness of each guitar built for a musician, such as Paul Stanley from the rock band KISS. Costs associated with the creation of a guitar include direct materials such as wood and strings, direct labor of the employees who build, assemble, and test the guitar. Additionally, the factory overhead costs such as the plant where the guitar is manufactured, the insurance on the plant, taxes, and all other indirect costs. After the costs are accumulated for Mr. Stanley's guitar, Washburn Guitars would then price the guitar to achieve a profit (selling price greater than the costs).

Select a company that would employ a job order costing system. Research the company and discuss why a job order costing system is the 'correct' fit for that organization. Discuss a product the company sells and discuss what direct and indirect costs would be included on the job cost sheet.

Follow the minimum requirements for discussion board posts located in the general discussion area. Recall, those are the minimum requirements, more posts are always encouraged.

The Production Process at Coca-Cola

The Coca-Cola Company is one of the worlds largest producers of nonalcoholic beverages. According to the company, more than 11,000 of its soft drinks are consumed every second of every day.

In the first stage of production, Coca-Cola mixes direct materialswater, refined sugar, and secret ingredientsto make the liquid for its beverages. The second stage includes filling cleaned and sanitized bottles before placing a cap on each bottle. In the third stage, filled bottles are inspected, labeled, and packaged.

Work in process begins with the first stage of production (mixing and blending), continues with the second stage (bottling), and ends with the third stage (inspecting, labeling, and packaging). When products have gone through all three stages of production, they are shipped to a warehouse, and the costs are entered into finished goods inventory. Once products are delivered to retail stores, product costs are transferred from finished goods inventory to cost of goods sold.

Source: Coca-Cola Company, Home Page, http://www2.coca-cola.com/ourcompany/bottlingtoday.

A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. A job costing system is used by companies that produce unique products or jobs. Process costing systems track costs by processing department, whereas job costing systems track costs by job.