Job Order Costing

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

 Distinguish between job
costing and process costing.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-2
 Job-Costing and
Process-Costing Systems

Job-costing Process-costing
system system

Distinct units Masses of identical

of a product or similar units of
or service a product or service

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-3
 7-step
approach to job costing.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-4
 Seven-Step Approach
to Job Costing
Step 1:
Identify the chosen cost object.
Step 2:
Identify the direct costs of the job.
Step 3:
Select the cost-allocation bases.
Step 4:
Identify the indirect costs.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-5
 Seven-Step Approach
to Job Costing

Step 5:
Compute the rate per unit.
Step 6:
Compute the indirect costs.
Step 7:
Compute the total cost of the job.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-6
 General Approach to Job Costing
A manufacturing company is planning to sell
a batch of 25 special machines (Job 650) to a
retailer for $114,800.
Step 1:
The cost object is Job 650.
Step 2:
Direct costs are: Direct materials = $50,000
Direct manufacturing labor = $19,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-7
 General Approach to Job Costing

Step 3:
The cost allocation base is machine-hours.
Job 650 used 500 machine-hours.
2,480 machine-hours were used by all jobs.
Step 4:
Manufacturing overhead costs were $65,100.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-8
 General Approach to Job Costing

Step 5:
Actual indirect cost rate is
$65,100 ÷ 2,480 = $26.25 per machine-hour.
Step 6:
$26.25 per machine-hour × 500 hours = $13,125

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4-9
 General Approach to Job Costing

Step 7:
Direct materials $50,000
Direct labor 19,000
Factory overhead 13,125
Total $82,125

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 10

 General Approach to Job Costing

What is the gross margin of this job?

Revenues $114,800
Cost of goods sold 82,125
Gross margin $ 32,675
What is the gross margin percentage?
$32,675 ÷ $114,800 = 28.5%

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 11

 Source Documents

Job cost record

Materials requisition record

Labor time record

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©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 13
 Transactions

Purchase of materials and other manufacturing inputs

Conversion into work in process inventory

Conversion into finished goods inventory

Sale of finished goods

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 14
 Transactions

$80,000 worth of materials (direct and

indirect) were purchased on credit.

Materials Control 80.000

Account Payable Control 80,000

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 15

 Transactions

Materials costing $75,000 were sent to the

manufacturing plant floor.
$50,000 were issued to Job No. 650 and
$10,000 to Job 651.
$15,000 of indirect materials were issued.
What is the journal entry?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 16

 Transactions

Work in Process Control 60.000*

Factory Overhead Control 15,000
Materials Control 75,000

*Job No. 650 50,000

*Job No. 651 10,000
*recorded in Job Cost Record

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 17

 Transactions

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 18

 Transactions

Materials Work in Process

Control Control
1. 80,000 2. 75,000 2. 60,000

Manufacturing
Overhead Job Cost Record
Control Job 650
2. 15,000 DM 50,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 19
 Transactions

Total manufacturing payroll for

the period was $27,000.
Job No. 650 incurred direct labor costs
of $19,000 and Job No. 651 incurred
direct labor costs of $3,000.
$5,000 of indirect labor was also incurred.
What is the journal entry?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 20
 Transactions

Work in Process Control 22.000*

Manufacturing Overhead Control 5,000
Wages Payable 27,000

*Job No. 650 19,000

*Job No. 651 3,000
*recorded in Job Cost Record

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 21

 Transactions
Wages Payable Work in Process
Control Control
3. 27,000 2. 60,000
3. 22,000
Manufacturing
Overhead JCR Job 650
Control DM. 50,000
2. 15,000 DL. 19,000
3. 5,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 22
 Transactions

Assume that depreciation for the

period is $26,000.
Other manufacturing overhead
incurred amounted to $19,100.
What is the journal entry?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 23

 Transactions

Manufacturing Overhead Control 45,100

Accumulated Depreciation
Control 26,000
Various Accounts 19,100

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 24

 Transactions

$62,000 of overhead was allocated to the

various jobs of which $12,500 went to Job 650.
Work in Process Control 62,000
Manufacturing Overhead Applied 62,000

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 25

 Transactions

The cost of Job 650 is:

JCR Job 650

D Material 50,000
D Labor 19,000
FOH 12,500
Total 81,500

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 26

 Transactions

Jobs costing $104,000 were completed and

transferred to finished goods, including Job 650.
What effect does this have on the control accounts?

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 27

 Transactions

Finished Good Control 104.000*

Work in Process Control 104,000

*including Job 650:

Materials $ 50,000
Direct Labor $ 19,000
FOH $ 12,500
Total $ 81,500
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 28
 Transactions

Work in Process Finished Goods

Control Control
2. 60,000 7. 104,000 7. 104,000
3. 22,000
6. 62,000
Bal. 40,000

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 29

 Transactions

Job 650 was sold for $114,800.

What is the journal entry?
Accounts Receivable Control 114,800
Revenues 114,800
Cost of Goods Sold 81,500
Finished Goods Control 81,500

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 30

 Let’s practice

Let’s practice

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