Cost Accounting

Foundations and Evolutions

Kinney and Raiborn
Seventh Edition

Job Order Costing

COPYRIGHT © 2009 South-Western, a part of Cengage Learning. South-Western is a trademark used herein

under license .
1
 Learning Objectives (1 of 3)
• Contrast the job order and process costing
systems and their valuation methods
• Explain the purpose of the documents used
in a job order costing system

2
 Learning Objectives (2 of 3)
• List the journal entries that are used to
accumulate costs in a job order costing
systems
• Describe cost flows in job order costing
systems

3
 Learning Objectives (3of 3)
• Explain how standard costs are used in a job
order costing system
• Describe how job order costing information
supports management decision making
• Explain how losses are treated in a job order
costing system

4
 Job Order or Process Costing
Job Order
• Small quantities
• Batches of
identifiable,
tailor-made
products
• User-specific
services
• Tracks costs by
job 5
 Job Order or Process Costing
Job Order Process
• Small quantities • Large quantities
• Batches of • Homogeneous
identifiable, goods
tailor-made
products • Tracks costs by
• User-specific batch of goods by
services department
• Tracks costs by
job 6
 Job Order Costing
• A job is a single unit or group of units
identifiable as being produced to distinct
customer specifications
• A job can be a
– Client
– Engagement
– Project
– Contract
7
 Product Costing
• Cost identification
• Cost measurement
• Product cost assignment

8
 Methods of Product Costing
• Cost Accumulation System defines
– cost object
– method of assigning costs to production
• Valuation Method specifies
– how product costs will be measured

9
 Six Possibilities
COST ACCUMULATION
V SYSTEM
A
L M Job Order Process
U E • Actual • Actual
A T • Normal • Normal
T H • Standard • Standard
I O
O D
N
 Valuation Methods
• Actual • Standard
– Actual direct material – Standard direct material
– Actual direct labor – Standard direct labor
– Actual overhead – Standard overhead
• Normal
– Actual direct material
– Actual direct labor
The
– Predetermined overhead Difference

11
12
 Job Order Costing System
• Each job is a cost object
• Costs are accumulated for each job
• A job can consist of one or more units of
output
• There is a subsidiary ledger for each job

13
 Job Order Costing System
WIP Subsidiary Ledger
Job 1 Job 2 Job 3 WIP Control
100 200 500 = Job 1 100
Job 2 200
Job 3 500
Total 800

Job 1 + Job 2 + Job 3 = WIP Control

 Material Requisition Form
• Tracks who is responsible for materials
• Verifies flow of materials from
warehouse to department to job

15
 Material Requisition Form
• Tracks who is responsible for materials
• Verifies flow of materials from warehouse to
department to job
• Journal entry
Work in Process Inventory (direct material)
Manufacturing Overhead (indirect material)
Raw Material Inventory

16
 Materials Requisition Form
Date ___________________ No. 341
Job No. _________________ Department _______________
Authorized by ___________ Issued by _________________
Received by _____________ Inspected by _______________
Item Part Unit of Quantity Quantity Unit Total
No. No. Descrip. Measure Required Issued Cost Cost

17
 Job Order Cost Sheet
• All financial information about a job
– direct material (from material
requisitions)
– direct labor (from time sheets or labor
tickets)
– applied overhead
– budgeted cost information
18
 Job Order Cost Sheet
• All financial information about a job
– direct material (from material requisition)
– direct labor (from time sheets or labor tickets)
– applied overhead
– budgeted cost information
• When job is complete, use job order cost
sheet to analyze actual costs compared to
budgeted costs
19
 Job Order Cost Sheet
Customer ____________ Job No. 315
Starting Date _________ Job Description ____________
Completion Date ______ Contract Price _____________
Materials Direct Labor Overhead Applied
Date Ref# Amount Date Ref # Amount Date Ref# Amount

Total Materials _________

Total Labor _________ Total Cost of Job
Total OH Applied _________ ========
20
21
 Employee Time Sheet
• Time worked on each job

22
 Employee Time Sheet
• Time worked on each job
• Journal entry
Work in Process Inventory (direct labor)
Manufacturing Overhead (indirect labor)
Payroll

23
To record the payroll distribution

Payroll
SSS Payable
Philhealth Payable
HDMF Payable
Salaries and Wages Payable

24
 Employee Time Sheet
Employee Name _______________
Employee No. _______________ For week ending
Department _______________ _______

Start Stop Total

Type of Work Job No. Time Time Day Hours

Employee Signature Supervisor’s Signature

25
 Manufacturing Overhead
Overhead Account
Actual Overhead Applied Overhead

• Journal Entry
Work in Process Inventory
Manufacturing Overhead (applied)
26
 Completion of a Job
• Move job cost sheet from WIP
subsidiary to Finished Goods subsidiary

27
 Completion of a Job
• Move job cost sheet from WIP
subsidiary to Finished Goods subsidiary
• Journal entry
Finished Goods Inventory
Work in Process Inventory

28
 Sale
• Journal entry
Accounts Receivable
Sale
Cost of Goods Sold
Finished Goods Inventory

29
 Sale
• Journal entry
Accounts Receivable Matches
Sale revenues
and
expenses on
Cost of Goods Sold
the income
statement
Finished Goods Inventory

30
 Journal Entries

Payroll Materials WIP-Job 1 FG

Accts Pay Overhead WIP-Job 2 CGS

WIP consists of job cost sheets

31
 Purchase Materials on Account (a)

Payroll Materials WIP-Job 1 FG

a

Accts Pay Overhead WIP-Job 2 CGS

a

32
 Use Materials Requisition to
Request Materials for Jobs (b)
Payroll Materials WIP-Job 1 FG
a b b

Accts Pay Overhead WIP-Job 2 CGS

a b b

Direct materials to WIP

Indirect materials to Overhead
Record Labor from Employee Time
Sheets (c)
Payroll Materials WIP-Job 1 FG
c a b b
c
Accts Pay Overhead WIP-Job 2 CGS
a b b
c c

Direct labor to WIP

Indirect labor to Overhead
 Apply Overhead (d)

Payroll Materials WIP-Job 1 FG

c a b b
c
d
Accts Pay Overhead WIP-Job 2 CGS
a b d b
c c
d

35
 Complete Job 1 (e)

Payroll Materials WIP-Job 1 FG

c a b b e e
c
d
Accts Pay Overhead WIP-Job 2 CGS
a b d b
c c
d

36
 Sell Job (f,g)

Payroll Materials WIP-Job 1 FG

c a b b e e f
c
d
Accts Pay Overhead WIP-Job 2 CGS
a b d b f
c c
d
Accts Rec Sales
g g
37
 Product and Material Losses
• Shrinkage
– Evaporation
– Leakage
– Oxidation
• Production errors
– Defects can be economically reworked
– Spoilage cannot be economically reworked
38
 Product and Material Losses
• Normal Loss – expected during
production
• Abnormal Loss – exceeds what is
expected during production

39
 Normal Loss
• Anticipated on all jobs
– Include cost when calculating predetermined
overhead application rate
– Include cost less the estimated disposal value
• Specific to a job
– Applied to the specific job
– Include cost less the estimated disposal value
40
 Abnormal Spoilage
• Period cost – includes cost of abnormal
loss less any disposal value

41
 Product and Material Losses
Normal Abnormal
Loss Loss

Loss for
most jobs In overhead Period cost
rate

Loss identified Charge to Period cost

with a specific job
specific job

42