Academic journal article Academy of Educational Leadership Journal

Job Order Costing: A Simulation and Vehicle for Conceptual Discussion

Academic journal article Academy of Educational Leadership Journal

Job Order Costing: A Simulation and Vehicle for Conceptual Discussion

Article excerpt


Job order costing is typically covered in cost accounting and managerial accounting courses and appears in virtually all such textbooks (e.g., Hilton, 2005; Schneider, 2009). Students often have difficulty understanding job order costing because they do not have a good understanding of manufacturing processes. To overcome this lack of understanding, it would help for students to be exposed to an actual manufacturing operation. The exercise described in this paper allows the student to experience a manufacturing operation in the classroom. The exercise involves the manufacture of a custom-made table out of balsa wood and other materials. The process begins with the purchase of raw materials and ends with the sale of the finished product.

Although other approaches have used LEGO[R] blocks to teach management accounting terms and techniques (Roth, 2005; Morgan, Martin, Howard, & Mihalek, 2005; Burns & Mills, 1997), this simulation is different in two major ways: (1) it focuses solely and comprehensively on job order costing whereas previous articles have only superficially covered job order costing, and (2) by using the variety of materials called for in this simulation, the product and manufacturing process is more realistic, affording the students the ability to clearly see the differences between direct materials and indirect materials, direct labor and indirect labor, and other items that constitute manufacturing overhead. We feel that this is an extremely important differentiation not only in understanding traditional cost accounting, but in understanding activity-based costing, since the difference between the two methods lies with overhead. This method of teaching job order costing provides the student with a hands-on experience and allows them to actively participate in the learning process. It is suitable for practically any classroom configuration with any number of students.

Two methods for increasing student interest discussed in the literature involve making the instruction fun and hands-on (Davis, 1993). The simulation described in this paper accomplishes both of those objectives. When students are interested in the topic, they are more likely to remember the lessons and key points (McKeachie, 1994). Simulations and role-play can be particularly effective teaching techniques by arousing interest, providing a concrete basis for discussion, and by illustrating the major principles from the lesson. Studies have shown active learning techniques such as simulations and role-play to be stronger than traditional methods of instruction in terms of knowledge retention, knowledge application, and motivational outcomes (Dekkers & Donatti 1981; McKeachie, 1999).

We have used this manufacturing simulation in undergraduate managerial and cost accounting classes, and in an MBA class to teach job order costing. The exercise reinforces cost and other concepts, such as types of costs and types of inventories, to which the students have been briefly exposed prior to learning about job order costing. The primary purpose of our exercise, however, is that it demonstrates how products flow through the factory and how the corresponding costs of making the product flow through the accounting system. The student sees first-hand how costs are accumulated and product cost is determined in a job order cost system. The exercise illustrates the use of source documents unique to job order costing such as the job cost sheet, time tickets, and materials requisition forms. The unique issues associated with how to charge manufacturing overhead to a particular job are also discussed, along with the procedures and concepts of an actual cost system versus a normal cost system.


We illustrate the flow of goods and costs in a manufacturing firm using a job order cost system by simulating a manufacturer of custom-made furniture. During a specified time period, we have a company working on three different pieces of furniture--table, bookshelves, and china cabinet. …

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