5 -1

J ob-Order
Costing
CHAPTER
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1. Describe the differences between job-order
costing and process costing, and identify the
types of firms that would use each method.
2. Identify and set up the source documents used
in job-order costing.
3. Describe the cost flows associated with job-
order costing.
4. Appendix: Prepare the journal entries
associated with job-order costing.
Objectives
After studying this
chapter, you should
be able to:
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Comparison of Job-Order and
Process Costing
Process or job-
order costing?
5 -4
Characteristics of Job-Order Costing
Wide-variety of services
or products that are quite
distinct from each other
Cost accumulated by job
Unit cost computed by
dividing total job costs
by units produced on that
job
BEAT
SOUTH
HIGH
5 -5
Characteristics of Process Costing
Produce large quantities of
similar or homogeneous
products
Cost accumulated by process or
department for a given period
of time
Unit cost computed by dividing
process costs of period by the
units produced in the period
5 -6
Process or
job-order
costing?
Process
Process
Job order
Job order
Job order
Process
Job order
Exxon oil refinery
Coca Cola plant
Custom home builder
Shop for customizing vans
Television repair shop
Campbell soup plant
Advertising agency
Law firm
Job order
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Job 425 Job 426 Job 427 Total
Beginning balance $58,600 $51,300 $ 0 $109,900
Current costs:
Direct materials 4,800 3,600 23,500 31,900
Direct labor 6,000 9,000 10,000 25,000
Applied overhead 2,400 3,600 4,000 10,000
Total $71,800 $67,500 $37,500 $176,800
This information is used to determine the total
cost of goods manufactured.
Job-Order Costing
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Johnson Leathergoods
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Job-Order Cost Sheet
A job-cost sheet is a
document used to
accumulate the cost for
a specific job in a job-
cost system
Job Cost Sheet
Direct Materials
Direct Labor
Factory Overhead
July 1 100 lbs. @$ 0.25 = $ 25
3 75 oz. @$1.40 = 105
July 1 3 hrs. @$10.00 = $ 30
3 7 hrs @$10.00 = 70
July 7 10 dlh x $2 = $ 20
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Direct materials $1,000
Direct labor 1,080
Applied Overhead 240
Total cost $2,320
number of units 20
Unit cost $ 116
Johnson Leathergoods
Unit Cost
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Johnson Leathergoods

Date
Department
Job

Authorized Signature
Description Quantity Cost/Unit Total Cost
Jim Lawson
Buckles 10 $30 $300
Material Requisition Form
Material Requisition
Number 12
January 11, 2004
Briefcase
Assembly
5 -12
Johnson Leathergoods




Authorized Signature
Start Time Stop Time Total Time Hourly Rate Amount Job Number
Jim Lawson

Job Time Ticket
Job Time Ticket
Number 8
Employee Number
Name
Date
8:00 10:00 2 $9 $18 Backpacks
10:00 11:00 1 9 9 Briefcases
11:00 12:00 1 9 9 Backpacks
1:00 5:00 4 9 36 Backpacks
4
Ed Wilson
January 12, 2003
Department Supervisor
5 -13
Through the Accounts
Johnson Leathergoods
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Materials Account
Beginning balance $0
Purchases 2,500
Direct material used 1,500
Ending balance 1,000
Job Order Cost Sheet Job Order Cost Sheet
Job: 20 Backpacks Job: 10 Briefcases
Direct materials 1,000 Direct materials $500
Direct labor Direct labor
Overhead applied Overhead applied
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
Summary of Materials Cost Flows
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Summary of Direct Labor Cost Flows
Wages Payable
Direct hours 170
x wage rate x $9
Total direct labor 1,530 $
Job Order Cost Sheet Job Order Cost Sheet
Job: 20 Backpacks Job: 10 Briefcases
Direct materials 1,000 $ Direct materials 500 $
Direct labor 1,080 Direct labor 450
Overhead applied Overhead applied
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
5 -16
Accounting for Overhead
Actual overhead costs are never
assigned directly to jobs.
Overhead is applied using a
predetermined overhead rate.
Estimated Overhead
Overhead rate =
Estimated Direct
Labor Hours
$9,600
4,800

= $2 per direct labor hour
Functional Approach
5 -17
Accounting for OverheadUsing ABC
Estimated Overhead ($)
for Each Driver
Expected Demand for
Each Driver
Purchasing $3,000 Purchase orders 100
Machining 4,200 Machine hours 2,800
Other 2,400 Direct labor hours 4,800
$3,000 100 = $30 per purchase order
$4,200 2,800 = $1.50 per machine hour
$2,400 4,800 = $0.50 per direct labor hour
5 -18
Accounting for OverheadUsing ABC
Backpacks:
Briefcases:
Purchase orders 3
Machine hours 60
Direct labor hours 120
Purchase orders 1
Machine hours 30
Direct labor hours 50
5 -19
Accounting for OverheadUsing ABC
Purchasing:
3 orders x $30 $ 90
1 order x $30 $30
Machining:
60 hours x $1.50 90
30 hours x $1.50 45
Other:
120 DLH x $0.50 60
50 DLH x $0.50 25
Total overhead applied $240 $100
5 -20
Summary of Overhead Cost Flows
Actual Overhead
Lease $200
Utilities 50
Equipment depreciation 100
Indirect labor 65
Total actual overhead $415
Job Order Cost Sheet
Job: 20 Backpacks
Job Order Cost Sheet
Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1,080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost Total cost
Number of units Number of units
Unit cost Unit cost
Applied Overhead
Direct labor hours 170
Overhead rate x $2
Total applied overhead $340
120 x $2 50 x $2
5 -21
Summary of Overhead Cost Flows
Actual Overhead Applied Overhead
Lease $200 Direct labor hours $170
Utilities 50 Overhead rate x $2
Equipment depreciation 100 Total applied overhead $340
Indirect labor 65
Total actual overhead $415
Job Order Cost Sheet Job Order Cost Sheet
Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1,080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
5 -22
Summary of Finished Goods Cost Flows
Job Order Cost Sheet Job Order Cost Sheet
Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost $2,320 Total cost $1,050
Number of units 20 Number of units
Unit cost $116 Unit cost
Finished Goods Account
Backpacks $2,320
5 -23
Johnson Leathergoods
Schedule of Cost of Goods Manufactured
For the Month Ended January 31, 2004
Direct materials:
Beginning raw materials inventory $ 0
Purchases of raw materials 2,500
Total raw materials available for use $2,500
Ending raw materials 1,000
Total raw materials used $1,500
Direct labor 1,530
Overhead:
Lease $ 200
Utilities 50
Depreciation 100
Indirect labor 65
$ 415

Continued
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$ 415
Less: Underapplied overhead 75
Overhead applied 340
Current manufacturing costs $3,370
Add: Beginning work in process 0
Total manufacturing cost $3,370
Less: Ending work in process 1,050
Cost of goods manufactured $2,320

5 -25
Statement of Cost of Goods Sold
Beginning finished goods inventory $ 0
Cost of goods manufactured 2,320
Cost of goods available for sale $2,320
Less: Ending finished goods inventory 0
Normal cost of goods sold $2,320
Add: Underapplied overhead 75
Adjusted cost of goods sold $2,395

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Johnson Leathergoods
Income Statement
For the Month Ended January 31, 2004
Sales $3,480
Cost of goods sold 2,395
Gross margin $1,085
Less selling and administrative expenses:
Selling expenses $200
Administrative expenses 550 750
Net operating income $ 335

5 -27
Journal Entries
Associated With Job-
Order Costing
Johnson Leathergoods
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1. Materials costing $2,500 were
purchased on account.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
1 Materials 2 500 00
Accounts Payable 2 500 00
Johnson Leathergoods
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2. Materials costing $1,500 were
requisitioned for use in production.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
2 Work in Process 1 500 00
Materials 1 500 00
Johnson Leathergoods
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3. Direct labor costing $1,530 was
recognized.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
3 Work in Process 1 530 00
Wages Payable 1
530 00
Johnson Leathergoods
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4. Overhead was applied to production at the
rate of $2 per direct labor hour. A total of
170 direct labor hours were worked.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
4 Work in Process 340 00
Overhead Control 340 00
Johnson Leathergoods
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5. Actual overhead costs of $415 were
incurred: lease, $200; utilities, $50;
depreciation, $100; accrued wages, $65.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
5 Overhead Control 415 00
Lease Payable 200 00
Utilities Payable 50 00
Accumulated Depreciation 100 00
Wages Payable 65 00
Johnson Leathergoods
5 -33
6. The backpacks were completed and transferred
to finished goods.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
6 Finished Goods 2 320 00
Work in Process 2 320 00
Johnson Leathergoods
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7. The backpacks were sold at
cost plus 50 percent.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
7 Cost of Goods Sold 2 320 00
Finished Goods 2 320 00
Johnson Leathergoods
7 Accounts Receivable 3 480 00
Sales Revenue 3 480 00
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8. Underapplied overhead was closed to cost of
goods sold.
The receiving report and the invoice are
used to record the receipt of the
merchandise and to control the payment.
8 Cost of Goods Sold 75 00
Overhead Control 75 00
Johnson Leathergoods
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Materials
(1) 2,500
Johnson Leathergoods
(1) Purchased of materials
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Johnson Leathergoods
(2) Issue of materials
Work in Process
(2) 1,500
(2) 1,500
Materials
(1) 2,500
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Johnson Leathergoods
(3) Incurrence of direct labor cost
Work in Process
(2) 1,500
(3) 1,530
Wages Payable
(3) 1,530
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Johnson Leathergoods
(4) Estimated overhead applied to Work in
Process
Work in Process
(2) 1,500
(3) 1,530
(4) 340
Overhead Control
(4) 340
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(5) Actual overhead recorded
Work in Process
(2) 1,500
(3) 1,530
(4) 340
Overhead Control
(4) 340 (5) 415
Johnson Leathergoods
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Johnson Leathergoods
(6) Transfer of Job 1 to finished goods
Work in Process
Finished Goods
(6) 2,320 (6) 2,320 (2) 1,500
(3) 1,530
(4) 340
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Johnson Leathergoods
(7) Cost of goods sold for Job 1 and
revenue from sale on account
Finished Goods
(6) 2,320
Cost of Goods Sold
Accounts Receivable
(7) 3,480
Sales Revenue
(7) 3,480
(7) 2,320 (6) 2,320
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Johnson Leathergoods
(8) Underapplied overhead closed
Overhead Control
(4) 340 (5) 415
(8) 75
Cost of Goods Sold
(7) 2,320
(8) 75
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The End
Chapter Five
5 -45