JOB ORDER COSTING

Reference: Integrated cost

Accounting
Marlon Oyzon Flores
 JOB ORDER COSTING
• Job order cost system is used when many
different products are produced each period, or
when products are made based on specific
customer orders.
• Direct costs are identified with specific unit of
production
• Used by aircraft, auto repair, construction,
printing and service organizations.
• Job order costing is the accumulation of costs by
specific jobs, contracts or orders.
Product Flow in Job Order costing

Work in
Process (job 1)
Materials Cost of
Finished Good
Labor Work in Goods Sold
Inventory
Overhead Process (Job 2)

Work in Process
(Job3)
 Flow of costs in Job order cost system
• Job order costing covers the following typical transactions in
determining the flow of costs:
1. Purchase of direct and indirect materials and return of materials
to supplier
2. Issuance of direct and indirect materials to production and return
of materials to storeroom
3. Incurrence, distribution and payment of payroll and accrual of
employer’s share in various contributions
4. Incurrence fo manufacturing overhead or other indirect resources
5. Application of factory overhead ot work in process
6. Incurrence of non-manufacturing expenses
7. Transfer of completed jobs to finished goods
8. Sale of finished goods
9. Transfer of finished goods to cost of goods sold
 Journal entries for normal historical
job order costing
transaction Journal entries
1. Purchase of direct and indirect Raw material inventory (a)
materials Accounts Payable

Return of materials to suppliers Accounts Payable

Raw materials inventory
2. Issuance of direct and indirect Work in Process Inventory (b)
materials to production Factory overhead ©
Raw materials inventory

Return of unused materials to storeroom Raw materials inventory

Work in Process inventory
3. Incurrence of accrual of payroll Payroll (d)
withholding tax payable
SSS contributions payable
Philihealth Payable
HDMF contribution
Accrued salaries
 Journal entries for normal historical
job order costing
Transaction Journal entries
Distribution of payroll to various Work in Process Inventory (b)
department Factory overhead control ©
Selling expenses
Administrative expense
Payroll

Payment of payroll Accrued salaries

Cash

Accrual of employer’s share in various Factory overhead control

contribution Selling expense
Administrative expenses
SSS contribution payable
Philhealth contribution payable
EC contributions payable
HDMF contributions payable
Accrued payroll
 Journal entries for normal historical
job order costing
Transaction Journal entries
4. Incurrence of manufacturing overhead Factory overhead control
or other indirect resources Specific assets or liability accounts
5. Application of factory overhead to work Work in Process inventory (b)
in process Applied factory overhead
6. Incurrence of non-manufacturing Selling or administrative expenses
expense Specific assets or liability account
7. Transfer of completed jobs to finished Finished goods inventory
goods Work in process inventory
8. Sale of finished goods Cash
Accounts receivable
Sales
9. Transfer of finished goods to cost of Cost of goods sold
goods sold Finished goods inventory
 Notes
a. Temporary accounts such as “material control” or “stores
control” may also be used. However, because these
control accounts are closed to raw materials account at
the end of the period, this textbook will use the raw
materials inventory account for simplicity.
b. Work in process inventory account is used for direct
materials and direct labor and applied factory overhead
c. Factory overhead control account is used for indirect
materials and indirect labor.
d. Payroll account is a clearing account that is used to
accrue the payroll before it is distributed to various
divisions. The account should be closed at the end of the
period after distribution to various divisions.
 Measuring costs in Job order costing
• Bills of materials
a bill of materials shows all types of materials
required to produce one finished product,
along with their respective quantities and
cost.
it may also include the labor, and overhead
requirement to show the total estimated cost
to produce one unit of a product.
 Accounting control
• Material requisition slip
– A material requisition slip is prepared by the production
department and approved by the respective production
head after a production or job order is issued.
• The production or job order is prepared when the customer
agreed with the materials to be used, as well as the quantities,
price and date of shipment .
– A duly approved material requisition slip is then submitted
to the store room or inventory warehouse clerk who will
issue the requested materials.
– Material requisition slip is used as a basis for recording the
materials issued in the accounting records.
 Sample bill of materials
Bill of materials
Cost groupF
Product number:
Item/materials Consumption
FG-101
UOM Cost per unit
#
Raw materials A1109 3.00 piece P4,500
Raw materials B1466 1.75 meter 210
Raw materials C0721 2.00 each 80
Raw materials D3099 1.75 gallon 350
Labor Assembly 2.5 hour 212.5
Labor Paintng 1.25 hour 112.5
Labor Finishing .15 hour 13.5
Fixed overhead FOH 1.00 Unit 590
Variable VOH 10.00 Hour 837.5
overhead
 Sample material requisition slip
Material requisition slip Date February 15, 2024
Requisition number: 14344 Department: Assembly
Employee: Susan Bating
Bin No.___________
Materials UOM Quantity Unit cost Amount Job Number
A1109 piece 6.0 P1,500 P9,000 Job 441
B1467 meter 7.0 130 910 Job 452
E3301 meter 4.2 80 336 Job 501
H2608 meter 10 50 500 Job 501
P10,746
Checked by: Storekeeper
Authorized by: Priced by:
 Employee time ticket
• An employee time ticket or time report contains the
total hours spent for each job and a description of the
work or tasks performed . When an employee is not
assigned to specific job, the description of the work
helps the accounting department in determining the
hours to be classified as direct or indirect labor.
• Employee time ticket is generally prepared on a daily
basis or as the work is performed. This ticket is
collected and forwarded to the accounting department
which calculates the labor cost to be classified as either
direct or indirect.
 JOB COST SHEET
• Job cost sheet is a key document that
accounts for all cost of direct materials issued ,
direct labor, and overhead incurred for a
particular job.
• The job cost sheet form a subsidiary ledger to
the work in process inventory account.
• Job cost sheet is prepared for each job order.
 Accounting for treatment for
underapplied or overapplied overhead
Variance is the difference between the overhead applied to production
and actual overhead incurred.
2 ways of accounting treatment for the variance
1. Closed to cost of goods sold. This method is generally used when
the overhead variance is relatively insignificant and for efficiency
reasons.
Accounting entry:
To close the underapplied overhead:
Cost of goods sold xx
Factory overhead control xx

To close the overapplied overhead

Factory overhead control xx
Cost of goods sold xx
 Accounting for treatment for
underapplied or overapplied overhead
• 2. Allocation to work in process, finished goods and cost of goods sold.
This method is more practicable than just closing the variance to cost of
goods sold especially if the amount is underapplied or overapplied
overhead is significant.
To close the underapplied overhead:
Work in Process Inventory xx
Finished goods inventory xx
Cost of goods sold xx
Factory overhead control xx

To close the overapplied overhead

Factory overhead control xx
Work in process inventory xx
Finished goods inventory xx
Cost of goods sold xx
 Example
Assume the following cost data:
Actual manufacturing overhead P660,000
Applied overhead 600,000
Cost of goods sold 900,000
Finished goods 540,000
Work in Process 360,000

using the data, the underapplied overhead was P60,000. the entry to close
the underapplied overhead to inventories and cost of goods sold is:
Work in process inventory 30,000
Finished goods inventory 18,000
Cost of goods sold 12,000
Factory overhead control 60,000
 Computation
Total allocation
Cost of goods sold P900,000 90/180 x P60,000 P30,000
Finished goods 540,000 54/180 x 60,000 18,000
Work in Process 360,000 36/180 x 60,000 12,000
P1,800,000 P 60,000