Describe Costs With Ordering And Maintaining Inventory?


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An ordering costing system is used in situations where many different products, or batches of products, are produced each period. Examples of industries that typically use job-order costing include shipbuilding, special-order printing, home building and furniture manufacturing. Job-order costing is also used in many service businesses, such as repair shops, advertising agencies, and law firms. For example, a firm uses job-order costing to determine the amount to bill each client. Likewise, an advertising agency uses job-order costing to determine the total amount to charge a client for an advertising campaign. To illustrate the design and operation of a job-order costing system, suppose Turbo Flex, a small fitness equipment company, manufactures the Turbo flex II, a total-body workout machine.
Most of Turbo Flex's production results from orders from specific customers, such as retail department stores and sporting goods stores. However, the company does manufacture a few units for stock; that I, it manufactures a few units to maintain on hand as a minimum level of inventory. Turbo Flex is organized into three major divisions: Administration, Production and Marketing. The production division is divided into five departments: Shaping, Assembling, Finishing, Maintenance and General Factory Services.

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