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


This paper offers a hands-on approach to teaching job order costing in introductory managerial accounting or in cost accounting. It is motivated by the belief that students would have a better appreciation of how goods and costs flow in a manufacturing firm through an experiential learning exercise as opposed to passive learning methods such as reading a text description or listening to a lecture. The exercise involves the simulated manufacture of a table from the purchase of raw materials through the sale of the finished product. Cost accumulation is illustrated using both actual and normal costing systems.


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® blocks to teach management accounting terms and techniques (Roth, 2005 ; Morgan, Martin, Howard, & Mihalek, 2005 ; Burns & Mills, 1 997), 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 & Donarti 1 98 1 ; 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. …

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