A key principle of
managerial accounting
Job Order Costing
and Journal entries
Jatin Jadhav
Managerial Accounting
Managerial accounting is the practice of identifying,
measuring, analyzing, interpreting, and
communicating financial information to managers for
the pursuit of an organization's goals.
Managerial accounting differs from financial
accounting because the intended purpose of
managerial accounting is to assist users internal to
the company in making well-informed business
decisions.
Job order costing is a system that helps businesses
calculate the cost of individual products or jobs.
Job Order Costing
A costing system that tracks costs
associated with individual production
jobs (custom orders).
Suitable for low-volume, high-value
production.
Costs are accumulated by individual
job throughout production.
Used in industries like construction,
printing, or custom furniture.
DIFFERENT TYPES OF JOBS
IN JOB ORDER COSTING
Production Job: A specific order for a unique
product or service.
Batch Job: A group of similar production jobs
treated as a single unit for costing purposes.
Standing Job: A continuously produced item
with ongoing costs that need to be allocated to
individual units produced.
Custom manufacturing, Construction, Printing
and Publishing are some example for this.
Understanding Job Order
Costs
Direct Materials: Materials that can be directly traced to a
specific job (e.g., wood for a cabinet).
Direct Labor: Labor costs that can be directly attributed
to a specific job (e.g., carpenter's time on a cabinet).
Manufacturing Overhead: Indirect costs associated with
production that cannot be directly traced to a specific
job (e.g., factory rent, utilities).
Work in Process (WIP)
Account
Definition: A temporary account that holds the
accumulated costs of jobs that are not yet completed.
Significance:
Represents the value of partially finished goods on hand
at any given time.
Allows for tracking costs as jobs progress through
production stages.
Record direct materials used: Debit WIP, Credit
Materials Inventory
Record direct labor costs: Debit WIP, Credit Wages
JOURNAL ENTRIES Payable
IN JOB ORDER Allocate manufacturing overhead: Debit WIP, Credit
COSTING Manufacturing Overhead
Purchase of Direct Materials:
journal entries are used to
The company purchases wood and other materials
record the various costs
incurred during the production needed to manufacture the dining table.
process for specific job orders. Debit: Raw Materials Inventory Credit: Accounts
Payable
Challenges of Job
Order Costing
Accurate Cost Tracking: Requires good tracking systems for
materials, labor, and overhead allocation.
Overhead Allocation Method: Choosing the most
appropriate method to distribute overhead costs to jobs.
Job Completion Timing: Determining when a job is complete
can impact cost calculations.
Addressing Job Order
Costing Challenges
Implement strong inventory control systems to track material usage.
Select a suitable overhead allocation method based on
production activity
For example :
direct labor hours, machine hours
Establish clear guidelines for determining job completion to
ensure consistent costing.
Thank you
