Use of Information Technology in Job Order Costing System

Use of Information Technology in Job Order Costing System:

Learning objectives of the articles:

  • What are advantages of using bar code technology in job order costing system.

Bar code technology can be used to record labor time–reducing the drudgery in that task and increasing accuracy. Bar codes also have many other uses. In a company with a well-developed bar code system, the manufacturing cycle begins with the receipt of a customer’s order in electronic form. Until very recently, the order would have been received via electronic data interchange (EDI), which involves a network of computers linking organizations. An EDI network allows companies to electronically exchange business documents and other information that extend into all areas of business activity from ordering raw materials to shipping completed goods. EDI was developed in the 1980s and requires significant investments in programming and networking hardware. Recently, EDI has been challenged by a far cheaper web-based alternative–XML (Extensible Markup Language), an extension of HTML (Hypertext Markup Language). HTML uses codes to tell your web browser how to display information on your screen, but the computer does not what the information is–it just displays it. XML provides additional tags that identify the kind of information that is being exchanged. For example, price data might be coded as <price>14.95<price>. When your computer reads this data and sees the tag <price> surrounding 14.95, your computer will immediately know that this is a price. XML tags can designate many different kinds of information–customer orders, medical records, bank statements, and so on–and the tags will indicate to your computer how to display, store, and retrieve the information. Office Depot is an early adopter of XML, which it is using to facilitate e-commerce with its big customers.

Once an order has been received via EDI or over the web in the form of an XML file, the computer draws up a list of required raw materials and sends out electronic purchase orders to suppliers. When materials arrive at the company’s plant from the suppliers, bar codes that have been applied by the suppliers are scanned to update inventory records and to trigger payment for the materials. The bar codes are scanned again when the materials are requisitioned for use in production. At that point, the computer credits the raw materials inventory account for the amount and type of goods requisitioned and charges the work in process inventory account.

A unique bar code is assigned to each job. This bar code is scanned to update work in process records for labor and other costs incurred in the manufacturing process. When goods are completed, another scan is performed that transfers both the cost and quantity of goods from the work in process inventory account to the finished goods inventory account, or charges cost of goods sold for goods ready to be shipped.

Goods ready to be shipped are packed into containers, which are coded with information that includes the customer number, the type and quantity of goods being shipped, and the order number. This bar code is then used for preparing billing information and for tracking the packed goods until placed on a carrier for shipment to the customer. Some customers require that the packed goods be bar coded with point-of-sale labels that can be scanned at retail check-out counters. These scans allow the retailer to update inventory records, verify price, and generate a customer receipt.

In short bar code technology is being integrated into all areas of business activity. When combined with EDI or XML, it eliminates a lot of clerical drudgery and allows companies to capture and exchange more data and to analyze and report information much more quickly and completely and with less error than with manual system.

Using XML to Enhance Web Commerce:

w.w. Grainger Inc. is in the unglamorous, but important, business of selling maintenance and repair supplies to organizations. For an effective web-based catalog, the company needs up-to-date, detailed product descriptions from its own suppliers. Grainger is using software from OnDisplay Inc. to collect product descriptions from vendors’ databases and to add XML tags. When Grainger’s customers request product information on the web, this data can be displayed in a standard format. This process cuts in half the amount of the time required to post new product information to Grainger’s web catalog.

If you would like to know more about XML, refer to the World Wide Web Consortium (W3C) website.

Source: John J. Xenakis, CFO, October 1999, pp. 31-36.

Managing Diversity With Technology:

Andersen Windows of Bayport, Minnesota, has developed techniques that allows it to produce just about any window configuration that a customer might order. Andersen has installed hundreds of Macintosh-based systems for designing windows at distributors and retailers around the country. Beginning with a standard design from the company’s catalog, this system allows a customer to “add, change, and strip away features until they have designed a window they are pleased with…The computer automatically checks the window specs for structural soundness, and then generates a price quote.” Once the sale is made, the retailers computer transmits the order with all of the necessary specifications to Andersen. At Andersen, the order is assigned a unique number and is tracked “in real time, using bar code technology, from the assembly line to the warehouse. This helps ensure that what the customer orders is what gets built and ultimately what gets shipped…Last year the company offered a whopping 188,000 different products, yet fewer than one in 200 van loads contained an order discrepancy.”

Source: Justin Martin, “Are you as good as you think you are?” Fortune, September 30, 1996 pp. 142-144.

You may also be interested in other useful articles from “job order costing system” chapter:

  1. Measuring Direct Materials Cost in Job Order Costing System
  2. Measuring Direct Labor Cost in Job Order Costing System
  3. Application of Manufacturing Overhead
  4. Job Order Costing System – The Flow of Costs
  5. Multiple Predetermined Overhead Rates
  6. Under-applied overhead and over-applied overhead calculation
  7. Disposition of any balance remaining in the manufacturing overhead account at the end of a period
  8. Predetermined Overhead Rate and Capacity
  9. Recording Non-manufacturing Costs
  10. Recording Cost of Goods Manufactured and Sold
  11. Job Order Costing in Services Companies
  12. Use of Information Technology in Job Order Costing
  13. Advantages and Disadvantages of Job Order Costing System
  14. Job Order Costing Discussion Questions and Answers
  15. Job Order Costing Exercises
  16. Case Studies


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