Meeting 2-1 - Job Costing

Product Costing
Using
Job-Order Costing
Financial
Accounting
Managerial
Accounting
Product costs are

used to value
inventory and to
compute cost of
goods sold.
Product costs are

used for planning,
control, and decision
making.
Actual Costing
Actual direct material

and direct labor
combined with
actual overhead.
Normal Costing
Actual direct material
and direct labor
combined with
predetermined overhead.
Using a predetermined rate makes it

possible to estimate total job costs sooner.
Actual overhead for the period is not
known until the end of the period.
Budgeted Costing
Budgeted direct material

and direct labor
combined with
predetermined overhead.
Process
Costing
Job-Order
Costing
Used for production of small,

identical, low cost items.
Mass produced in automated
continuous production process.
Costs cannot be directly traced to
each unit of product.
Process
Costing
Job-Order
Costing
Typical process cost applications:

Petrochemical refinery
Paint manufacturer
Paper mill
Process
Costing
Job-Order
Costing
Used for production of large,

unique, high-cost items.
Built to order rather than mass
produced.
Many costs can be directly traced
to each job.
Process
Costing
Job-Order
Costing
Typical job order cost applications:

Special-order printing
Building construction
Also used in service industry
Hospitals
Law firms
Receive
orders from
customers
Schedule
jobs
Begin
production
Order
materials
Manufacturing
overhead (OH)
Direct
materials
Applied to each
job using a
predetermined
rate
Trac
ed d
i rec
to e
t ly
ach
job
THE JOB
Direct
labor
tly
c
e
ir
d
ed
c
ob
a
j
Tr
h
c
a
e
to
Direct
Direct Materials
Materials
Direct
Direct Labor
Labor
Manufacturing
Manufacturing
Overhead
Overhead
Job
Job No.
No. 11
Job
Job No.
No. 22
Job
Job No.
No. 33
Charge
Charge
direct
direct
material
material
costs
costs to
to
each
each job
job as
as
the
the
materials
materials
are
are used.
used.
Direct
Direct Materials
Materials
Direct
Direct Labor
Labor
Manufacturing
Manufacturing
Overhead
Overhead
Job
Job No.
No. 11
Job
Job No.
No. 22
Job
Job No.
No. 33
Charge
Charge
direct
direct labor
labor
costs
costs to
to
each
each job
job as
as
the
the work
work is
is
performed.
performed.
Direct
Direct Materials
Materials
Direct
Direct Labor
Labor
Manufacturing
Manufacturing
Overhead
Overhead
Job
Job No.
No. 11
Job
Job No.
No. 22
Job
Job No.
No. 33
Apply
Apply
overhead
overhead to
to
each
each job
job
using
using aa
predeterpredetermined
mined rate.
rate.
Direct
Direct Materials
Materials
Direct
Direct Labor
Labor
Manufacturing
Manufacturing
Overhead
Overhead
Job
Job No.
No. 11
Job
Job No.
No. 22
Job
Job No.
No. 33
Special
Special
documents
documents
are
are used
used to
to
track
track costs
costs
for
for each
each job.
job.
The primary
document for
tracking the costs
associated with a
given job is the jobcost sheet.
Lets investigate
RoseCo Job-Cost Sheet

Job Number A - 143
Department B3
Item Wooden cargo crate
Date Initiated 3-4-X9

Date Completed
Units Completed
Direct Materials
Direct Labor
Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours
Rate
Amount
Cost Summary
Direct Materials
Direct Labor
Total Cost
Unit Cost
Units Shipped
Date Number Balance

Job Number A - 143
Department B3
Direct Materials
Req. No. Amount

Date Completed
Units Completed
A materials requisition
Direct Labor
form
used
Ticket Hours Amount is
Hours
Rateto Amount
authorize the use of
materials on a job.
Cost Summary
Direct Materials
Direct Labor
Total Cost
Unit Cost
Units Shipped
Date Number Balance
Lets see one
Will E. Delite
Cost of material
is charged to job
A-143.
Will E. Delite
Type, quantity, and

total cost of material
charged to job A-143.
Will E. Delite
The materials requisition form also serves as

the source document for recording material
usage in the accounting records.
Will E. Delite

Job Number A - 143
Department B3

Date Completed
Accumulate
Units Completed
Direct Materials
Direct Labor
Req. No. Amount Ticket Hours Amount
X7-6890 $ 116
Cost Summary
Direct Materials
Direct Labor
Total Cost
Unit Cost
116
direct labor
by
Manufacturingcosts
Overhead
Hours
Rate
Amount
means
of a
work record,
such as a time
ticket,
Units
Shippedfor each
Date Number
Balance
employee.
Lets see one
RoseCo Employee Time Ticket

Time Ticket No.
Employee
Starting
Time
0800
Totals
Supervisor
36
I. M. Skilled
Ending
Time
1600
Date
3-5-X9
Station
42
Hours
Hourly
Completed
Rate
8.00
$
11.00
8.00
C. M. Workman
11.00
Amount
$
88.00
88.00
Job No.
A-143
A-143

Job Number A - 143
Department B3

Date Completed
Units Completed
Direct Materials
Direct Labor
Rate
Amount
X7-6890 $ 116
36
8
$
88
Cost Summary
Direct Materials
Direct Labor
Total Cost
Unit Cost
$
$
116
88
Units Shipped
Date Number Balance

Job Number A - 143
Department B3

Date Completed
Units Completed
Direct Materials
Direct Labor
Rate
Amount
X7-6890 $ 116
36
8
$
88
Cost Summary
Units Shipped
Direct
Materials
116
Datejobs
Number
Balance
Apply
manufacturing$overhead
to
using
a
Direct Labor
$
88
predetermined
rate based on direct
Manufacturing
Overheadoverhead
$
Total Cost
$
labor hours
(DLH).
Unit Cost
$
Lets do it

Job Number A - 143
Department B3

Date Completed 3-5-X9
Units Completed
2
Direct Materials
Direct Labor
Rate
Amount
X7-6890 $ 116
36
8
$
88
8
$
4 $
32
Cost Summary
Direct Materials
Direct Labor
Total Cost
Unit Cost
$
$
$
$
$
116
88
32
236
118
Units Shipped
Date Number Balance
Overhead is applied to jobs using a predetermined

overhead rate (POHR) based on estimates made at
the beginning of the accounting period.
POHR =
Budgeted manufacturing-overhead cost

Budgeted amount of cost driver (or activity base)

POHR =

Overhead applied = POHR Actual activity

Based on estimates, and
determined before the
period begins
Actual amount of the allocation

base, such as direct labor hours,
incurred during the period

POHR =

Overhead applied = POHR Actual activity

Recall the wooden crate example where:
Overhead applied = RM4 per DLH 8 DLH
= RM32
RoseCo applies overhead based on directlabor hours. Total estimated overhead for the
year is RM640,000. Total estimated labor cost
is RM1,400,000 and total estimated labor
hours are 160,000.
What is RoseCos predetermined overhead
rate?
POHR =

RM640,000
POHR
= direct-labor hour worked on a
For
each
160,000 direct-labor hours (DLH)
job, RM4.00 of factory overhead will be
applied
the job.
POHR = RM4.00
perto
DLH

Job Number X - 32
Department B3

Units Completed
6
Direct Materials
Direct Labor
Rate
Amount
X7-7456 $ 240
23
26
$ 286
Cost Summary
Units Shipped
Direct Materials
$ 240 Date Number Balance
Direct Labor What amount of$ overhead
286
will
RoseCo apply to Job X-32?
Total Cost
Unit Cost

Job Number X - 32
Department B3

Units Completed
6
Direct Materials
Direct Labor
Rate
Amount
X7-7456 $ 240
23
26
$ 286
26
$
4 $ 104
SOLUTION
Cost Summary
Units Shipped
Direct Materials
$ 240 Date Number Balance
Direct Labor
$ 286
Overhead
applied
=
POHR
Actual Direct-Labor Hours

Total Cost
Overhead
Unit Costapplied = RM4.00 per DLH 26 DLH
= RM104
Job-Order Costing
Document Flow Summary
Lets summarize
the document
flow we have
been discussing
in a job-order
costing system.
The materials
requisition
indicates the
cost of direct
material
to charge to
jobs
and the cost of
indirect material
to charge to
overhead.
Direct
materials
Materials
Materials
Ledger
Cards
Materials
Ledger
Cards
Materials
Ledger Cards
Requisition
Indirect
materials
Job Cost
Cost
Job
Job
Cost
Sheets
Job-Cost
Sheets
Sheets
Sheets
Manufacturing
Overhead
Account
Direct
Employee time
Labor
tickets indicate
the cost of direct
Employee Time
labor
Employee
Time
Ticket
Employee
Time
to charge to Employee
Ticket
Time
Ticket
jobs
Ticket
and the cost
of indirect labor
to charge to
Indirect
Labor
overhead.
Job Cost
Cost
Job
Job
Cost
Sheets
Job-Cost
Sheets
Sheets
Sheets
Manufacturing
Overhead
Account
Employee
Time Ticket
Other
Actual OH
Charges
Materials
Requisition
Indirect
Labor
Manufacturing
Overhead
Account
Indirect
Material
Overhead
Applied
with
POHR
Job-Cost
Sheets
Job-Order System Cost Flows
Lets examine the

cost flows in a
job-order costing
system. We will
use T-accounts
and start with
materials.

Raw Materials
Material
Purchases
Mfg. Overhead
Work in Process
(Job-Cost Sheet)

Raw Materials
Direct
Material
Purchases Material
Mfg. Overhead
Work in Process
(Job-Cost Sheet)
Direct
Material

Raw Materials
Direct
Material
Purchases Material
Indirect
Material
Mfg. Overhead
Indirect
Material
Work in Process
(Job-Cost Sheet)
Direct
Material
Next lets add

labor costs and
applied
manufacturing
overhead to the
job-order cost
flows.

Wages Payable
Mfg. Overhead
Indirect
Material
Work in Process
(Job-Cost Sheet)
Direct
Material

Wages Payable
Direct
Labor
Mfg. Overhead
Indirect
Material
Work in Process
(Job-Cost Sheet)
Direct
Material
Direct
Labor

Wages Payable
Direct
Labor
Indirect
Labor
Mfg. Overhead
Indirect
Material
Indirect
Labor
Work in Process
(Job-Cost Sheet)
Direct
Material
Direct
Labor

Wages Payable
Direct
Labor
Indirect
Labor
Mfg. Overhead
Indirect Overhead
Material Applied to
Work in
Indirect
Process
Labor
Work in Process
(Job-Cost Sheet)
Direct
Material
Direct
Labor
Overhead
Applied

Wages Payable
Direct
Labor
Indirect
Labor
Mfg. Overhead
Indirect Overhead
Material Applied to
Work in
Indirect
Process
Labor
Work in Process
(Job-Cost Sheet)
Direct
Material
Direct
Labor
Overhead
Applied
If actual and applied
manufacturing overhead are
not equal, a year-end
adjustment is required. We
will look at the procedure to
accomplish this later.
Now lets
complete the
goods and sell
them.

Work in Process
(Job-Cost Sheet)
Finished Goods
Direct
Material
Direct
Labor
Overhead
Applied
Cost of Goods Sold

Work in Process
(Job-Cost Sheet)
Direct
Cost of
Material
Goods
Direct
Mfd.
Labor
Overhead
Applied
Finished Goods
Cost of
Goods
Mfd.
Cost of Goods Sold

Work in Process
(Job-Cost Sheet)
Direct
Cost of
Material
Goods
Direct
Mfd.
Labor
Overhead
Applied
Finished Goods
Cost of
Goods
Mfd.
Cost of Goods Sold

Cost of
Goods
Sold
Cost of
Goods
Sold
Lets return to
RoseCo and see
what we will do if
actual and
applied overhead
are not equal.
RoseCos actual overhead for the year was RM650,000

and a total of 170,000 direct-labor hours were worked.
Using RoseCos predetermined overhead rate of RM4.00
per direct-labor hour, how much overhead was applied
to all of RoseCos jobs during the year?
RoseCos actual overhead for the year was RM650,000

and a total of 170,000 direct-labor hours were
worked.
Using RoseCos predetermined overhead rate of
RM4.00 per direct-labor hour, how much overhead
was applied to all of RoseCos jobs during the year?
SOLUTION
Applied Overhead = POHR Actual Direct-Labor Hours
Applied Overhead = RM4.00 per DLH 170,000 DLH =
RM680,000
RoseCos actual overhead for the year wasRM650,000

and a total of 170,000 direct-labor hours were worked.
Using RoseCos predetermined overhead rate of $4.00
per direct-labor hour, how much overhead was applied
to all of RoseCos jobs during the year?
SOLUTION
Applied Overhead = POHR Actual Direct-Labor Hours
Applied Overhead = RM4.00 per DLH 170,000 DLH =
RM680,000
RoseCo has overapplied

overhead for the year
by RM30,000. What will
RoseCo do?
RoseCos Cost
of Goods Sold
for the year
Unadjusted
Balance
RoseCos
Mfg. Overhead
for the year
Actual
overhead
Overhead
costs
Applied
to jobs
RM650,000
RM680,000
RM30,000
overapplied
RoseCos Cost
of Goods Sold
for the year
Unadjusted
Balance
Actual
overhead
RM30,000
Adjusted
Balance
RoseCos
Mfg. Overhead
for the year
Overhead
Applied
costs
to jobs
RM650,000 RM680,000
RM30,000
RM30,000
overapplied
Alternative 1
If Manufacturing
Overhead is . . .
UNDERAPPLIED
(Applied OH is less
than actual OH)
OVERAPPLIED
(Applied OH is greater
than actual OH)
Allocation
Alternative 2
Close to Cost
of Goods Sold
INCREASE
Work in Process
Finished Goods
Cost of Goods Sold
INCREASE
Cost of Goods Sold
DECREASE
Work in Process
Finished Goods
Cost of Goods Sold
DECREASE
Cost of Goods Sold
Lets look at
summary journal
entries for a joborder costing
system. Well omit
the numbers so
that we can focus
on accounts.
Raw material purchases are recorded in an

inventory account.
GENERAL JOURNAL
Date
Description
Raw Material Inventory

Accounts Payable
Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX
Direct materials issued to a job increase Work in

Process and decrease Raw Materials. Indirect
materials used on a job are charged to
Manufacturing Overhead and also decrease Raw
Materials.
GENERAL JOURNAL
Date
Description
Work-in-Process Inventory
Raw Material Inventory
Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX
XXXXX
The cost of direct labor incurred on a job

increases Work in Process and the cost of
indirect labor on a job increases
Manufacturing Overhead.
GENERAL JOURNAL
Date
Description
Wages Payable
Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX
XXXXX
In addition to indirect materials and indirect

labor, other manufacturing overhead costs
are charged to the Manufacturing Overhead
account as they are incurred.
GENERAL JOURNAL
Date
Description
Prepaid Rent
Accumulated Depreciation
Accounts Payable
Prepaid Insurance
Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Work in Process is increased when

Manufacturing Overhead is applied to jobs.
GENERAL JOURNAL
Date
Description
Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX
Nonmanufacturing costs (period expenses) are

charged to expense as they are incurred.
GENERAL JOURNAL
Date
Description
Selling and Admin. Expenses

Wages Payable
Accounts Payable
Prepaid Rent
Office Supplies Inventory
Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
As jobs are completed, the cost of goods

manufactured is transferred to Finished
Goods from Work in Process.
GENERAL JOURNAL
Date
Description
Finished-Goods Inventory
Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX
When finished goods are sold, two entries

are required: (1) to record the sale; and (2)
to record Cost of Goods Sold and reduce
Finished Goods.
GENERAL JOURNAL
Date
Description
Page
Post.
Ref.
Debit
Accounts Receivable
Sales
XXXXX
Cost of Goods Sold

Finished-Goods Inventory
XXXXX
3
Credit
XXXXX
XXXXX
Underapplied manufacturing overhead is

closed into Cost of Goods Sold.
GENERAL JOURNAL
Date
Description
Cost of Goods Sold

Page
Post.
Ref.
Debit
3
Credit
XXXXX
XXXXX

Meeting 2-1 - Job Costing

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Meeting 2-1 - Job Costing

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Product Costing

Product costs are

Product costs are

Actual direct material

Using a predetermined rate makes it

Budgeted direct material

Used for production of small,

Typical process cost applications:

Used for production of large,

Typical job order cost applications:

RoseCo Job-Cost Sheet

Date Initiated 3-4-X9

RoseCo Job-Cost Sheet

Date Initiated 3-4-X9

Lets see one

Type, quantity, and

The materials requisition form also serves as

RoseCo Job-Cost Sheet

Date Initiated 3-4-X9

RoseCo Employee Time Ticket

RoseCo Job-Cost Sheet

Date Initiated 3-4-X9

RoseCo Job-Cost Sheet

Date Initiated 3-4-X9

RoseCo Job-Cost Sheet

Date Initiated 3-4-X9

Overhead is applied to jobs using a predetermined

Budgeted manufacturing-overhead cost

Overhead is applied to jobs using a predetermined

Budgeted manufacturing-overhead cost

Overhead applied = POHR Actual activity

Actual amount of the allocation

Overhead is applied to jobs using a predetermined

Budgeted manufacturing-overhead cost

Overhead applied = POHR Actual activity

Budgeted manufacturing-overhead cost

RoseCo Job-Cost Sheet

Date Initiated 3-9-X9

RoseCo Job-Cost Sheet

Date Initiated 3-9-X9

Actual Direct-Labor Hours

Job-Order System Cost Flows

Lets examine the

Job-Order System Cost Flows

Job-Order System Cost Flows

Job-Order System Cost Flows

Job-Order System Cost Flows

Next lets add

Job-Order System Cost Flows

Job-Order System Cost Flows

Job-Order System Cost Flows

Job-Order System Cost Flows

Job-Order System Cost Flows

Job-Order System Cost Flows

Job-Order System Cost Flows

Cost of Goods Sold

Job-Order System Cost Flows

Cost of Goods Sold

Job-Order System Cost Flows

Cost of Goods Sold

Job-Order System Cost Flows

RoseCos actual overhead for the year was RM650,000

RoseCos actual overhead for the year was RM650,000

RoseCos actual overhead for the year wasRM650,000