How Work in Process Inventory is measured in Job Order Costing System

In job order costing, the Work in Process Inventory control and subsidiary ledger accounts for Ecoland Marine’s product costing system. The usual production costs of direct material, direct labor, and overhead are accumulated for each contract. 

Actual direct material and direct labor costs are combined with an overhead cost that is computed as a predetermined overhead rate multiplied by some actual cost driver (such as direct labor hours, cost or quantity of materials used, or number of material requisitions). 

Normal cost valuation is used because, although actual direct material and direct labor costs are fairly easy to identify and associate with a particular job, overhead costs are usually not traceable to specific jobs and must be allocated to production. 

For example, Ecoland Marine’s March utility costs are related to all jobs worked on during that month. Accurately determining which jobs created the need for a given amount of water, heat, or electricity would be almost impossible.

To  ensure  the proper  recording of  costs,  the  amounts  appearing  in  the  subsidiary ledger accounts are periodically compared with and reconciled to the Work in Process  Inventory  control  account  in  the  general  ledger. This  reconciliation  is indicated by the equality of the assumed ending balances of the subsidiary ledger accounts with  the WIP  Inventory control account.