Job-Order Costing System

• Job-Order Costing Systems – a product-

costing system in which costs are
assigned to batches or job orders of
production.
• Finished Product can be individually
identified
Costing Systems Used to Determine Product Costs

Process Job-order
Costing Costing

Chapter 10
 Many different jobs are worked on during each period.
 Products are manufactured to order. (customer satisfaction)
 Unit costs are computed by job
Costs accumulated by using job cost sheet
 Cost records must be maintained for each distinct
product or job. (JOB ORDER SHEET)
Each job assigned number
 Types of Organisations Using
Job Costing
Process Job-order
Costing Costing

• A cost accounting system where costs are

assigned to each job or batch of goods.
• Custom built factory
 Typical job order cost applications:
• Production of movie
 Special-order printing
• Batch of menus  Building construction
• Audit engagement  Also used in the service industry
 Hospitals
 Law firms
 Comparison of Job-Order and
Process Costing
Job-Order Costing Process Costing
1. Wide variety of distinct 1. Homogeneous products
products
2. Cost accumulated by job 2. Costs accumulated by
process or department
3. Unit cost computed by 3. Unit cost computed by
dividing total job costs dividing process costs of
by units produced on that the period by the units
job produced in the period
BEAT
SOUTH
HIGH
 Exxon oil refinery Process
Process
Process or
or
Process
job-order
job-order Coca Cola plant
Custom home builder Job order
costing?
costing?
Shop for customizing vans Job order
Television repair shop Job order
Campbell soup plant Process
Advertising agency Job order
Law firm Job order
 Illustration 2-1

Job Order Cost System

Two Jobs: Wedding Invitations and Menus

Black ink $ Colored Ink $

Typesetting $
Vellum stock $
Typesetting $ Yellow stock $
Yellow Stock
225 225 Envelopes Lamination$
Invitations $ $ 50 Copies $

Job #9501 Job #9502

Each job has distinguishing characteristics and related costs.

Illustration 3-2
 Job-Order
Job-Order Costing
Costing

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.
 Sequence of Events in a Job-
Order Costing System
Receive Begin
orders from production
customers

Schedule Order
jobs materials
 Job Order Cost Flow

Tra
ced
t o e d ir ec
ach tly
jo b Two Major Steps in Cost Flow
Traced
directly
• Accumulating the
t o e ac h
job THE JOB manufacturing costs incurred
– Raw materials inventory
e ach
ed to a
g
– Factory Labor
i
pl usin ined
p
A ob – Manufacturing Overhead
j eter m
d e
pre rat • Assigning the accumulated
costs to the work done
 Sequence of Events in a Job-Order Costing
System
Material Inventory Record
Each individual item of raw materials has a
card or record.
Item: Handles Part No: AA2746
Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total
1/4 2,000 $5 $10,000 2,000 $5 $10,000

The sum of the balances of all these

records should equal raw materials in
the general ledger.

Charge
Charge
Direct
DirectMaterials
Materials Job
JobNo.
No.11 direct
direct
material
material and
and
Direct
DirectLabor
Labor direct
direct labor
labor
Job
JobNo.
No.22
costs
costs to
to
each
each job
job as
as
Manufacturing
Manufacturing Job
JobNo.
No.33 work
work isis
Overhead
Overhead
performed.
performed.
 Sequence of Events in a Job-Order Costing
Direct Materials
System
Direct Materials
Apply
Applyoverhead
overheadto to
Job
JobNo.
No.11 each job using a
each job using a
predeter-mined
predeter-mined
rate.
rate.
Direct
DirectLabor
Labor
Job
JobNo.
No.22 The predetermined
overhead rate
(POHR) used to
Manufacturing apply overhead to
ManufacturingOverhead
Overhead Job
JobNo.
No.33 jobs is determined
before the period
begins.
Estimated total manufacturing
overhead cost for the coming period
POHR =
Estimated total units in the
allocation base for the coming period

Ideally, the allocation base is a cost driver

that causes overhead.
Job Order Cost Accounting
 Job-Order Cost Accounting
Let’s investigateThe primary document
for tracking the costs
associated with a
Job-Order
Job-Order Cost
Cost Sheet
Sheet given job is the job
cost sheet.

•• AAjob-cost
job-costsheet
sheetisisaa
document
documentusedusedto
to
accumulate
accumulatethethecost
cost
for
foraaspecific
specificjob
jobin
inaa
Job Cost
Sheet
July 1Direct100
0.25 = $ 25
lbs. @ $
Materials
job-cost
job-costsystem
systemto to
determine
determinethethetotal
3 75 oz. @

total
$1.40 = 105
July 1 Direct
3 hrs. @
Labor
$10.00 = $ 30
3 7 hrs @

and
andunit
unitcost
costof
ofthe
$10.00 = 70

the
Factory
July 7 10Overhead
dlh x $2
= $ 20

completed
completedjobjob
Job-Order Cost Accounting
Job-Order Cost Accounting

A materials requisition
form is used to
authorize the use of
materials on a job.

Let’s see one

 Materials Requisition Form
A document authorizing the issuance of raw
materials from the store to production.

Will E. Delite
 Materials Requisition Form

Cost of material is
charged to job A-143.

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.
 Materials Requisition Form
A document authorizing the issuance of raw
materials from the store to production.
Job-Order Cost Accounting
Job-Order Cost Accounting

Accumulate direct
labor costs by
means of a work
record, such as a
time ticket, for each
employee

Let’s see one

 Employee Time Ticket
A document that indicates the employee, the hours
worked, the account and the job to be charged,
and the total labor cost.
 Employee Time Ticket
A document that indicates the employee, the hours
worked, the account and the job to be charged,
and the total labor cost.
Job-Order Cost Accounting
Job-Order Costing
Document Flow Summary

Let’s summarize
the document
flow we have
been discussing
in a job-order
costing system.
 Job-Order Costing
Document Flow Summary
Materials used
may be either
direct or
indirect.
Direct Job Cost
materials Sheets
Materials
Materials
Ledger Cards
Materials
Materials
Ledger Cards
Materials
Ledger Cards
Requisition
Requisition
The materials requisition
indicates the cost of
direct material Manufacturing
to charge to Indirect
Overhead
jobs and the cost of materials
indirect material to Account
charge to overhead.
 Job-Order Costing
Document Flow Summary

An employee’s
time may be either Direct Job Cost
direct or indirect. Labor Sheets

Employee time tickets Employee Time

indicate the cost of Ticket
direct labor
to charge to
jobs Manufacturing
Indirect
and the cost Overhead
of indirect labor to Labor
Account
charge to overhead.
 Job-Order Costing
Document Flow Summary
Employee Indirect
Time Ticket Labor

Other Manufacturing
Applied Job Cost
Actual OH Overhead
Overhead Sheets
Charges Account
With
POHR
Materials Indirect
Requisition Material
 Job Order Cost Accounting
Let’s examine the
cost flows in a job-
order costing
system. We will use Flow of Costs
T-accounts and start
with materials.

R a w M a te r ia ls In v e n to r y W o rk in P ro c e s s In v e n to ry F in is h e d G o o d s In v e n to r y
(1 ) 4 2 ,0 0 0 (4 ) 3 0 ,0 0 0 4 (4 ) 2 4 ,0 0 0 (7 ) 3 9 ,0 0 0 7 (7 ) 3 9 ,0 0 0 (8 ) 3 9 ,0 0 0 8
B a l. 1 2 ,0 0 0 (5 ) 2 8 ,0 0 0
(6 ) 2 2 ,4 0 0
B a l. 3 5 ,4 0 0
Factory Labor
C o s t o f G o o d s S o ld
(2) 32,000 (5) 32,000
5 (8 ) 3 9 ,0 0 0

Key to Entries:
M a n u fa c tu r in g O v e r h e a d
(3 ) 1 3 ,8 0 0 (6 ) 2 2 ,4 0 0 6 Accum ulation Assignm ent
(4 ) 6 ,0 0 0 1. Purchase raw m aterials 4. R aw m aterials are used
(5 ) 4 ,0 0 0 2. Incur factory labor 5. Factory labor is used
B a l. 1 ,4 0 0
3. Incur m anufacuring 6. O verhead is applied
overhead 7. C om pleted goods are
recognized
8. C ost of goods sold is
recognized
 Job-Order System Cost Flows
Work in Process
Raw Materials (Job Cost Sheet)
Material

Direct Direct
 WIP debited for the
Purchases Materials cost of materials
Materials issued to jobs
Raw materials account Raw materials account
Indirect is credited for the cost
is debited for the cost
Materials of materials issued to
of materials purchased
jobs

Mfg. Overhead
Actual Applied

Indirect Overhead control is

Materials debited for the cost
of actual overhead
Job-Order System Cost Flows

Next let’s add

labor costs and
applied
manufacturing
overhead to the
job-order cost
flows.
 Job-Order System Cost Flows
Salaries and Work in Process
Wages Payable (Job Cost Sheet)
Wages payable is Direct

 Direct
credited for the cost Labor
of direct labour
 Indirect Materials
Direct
 WIP is debited for
the cost of direct
Labor
Labor labour
 Overhead
Applied WIP is debited
Mfg. Overhead for applied
overhead
Actual Applied
Indirect Overhead
 Overhead applied using a
Materials plant wide rate
Applied to
 Indirect Work in
IfIfactual
actualand
andapplied
applied
Overhead is Labor Process
manufacturing
manufacturingoverhead
overhead
credited
for are
are not equal, ayear-end
not equal, a year-end
applied adjustment
overhead adjustmentisisrequired.
required.
Job-Order System Cost Flows

Now let’s
complete the
goods and sell
them.
 Job-Order System Cost Flows
Work in Process
(Job Cost Sheet) Finished Goods
 Direct
Cost of
 Cost of Cost of
Goods Goods Goods
Materials
Direct Sold
Mfd. Mfd.
Labor Debit finished
Overhead goods for
COGM
Applied
Cost of Goods Sold Credit finished
Credit WIP for goods for
value of units
COGM Cost of

sold
Goods
Sold Debit COGS for
value of units
sold
Job-Order Costing – Typical
Accounting Entries

Let’s look at
summary journal
entries for a job-
order costing
system. We’ll omit
the numbers so
that we can focus
on accounts.
Cost Flows – Material Purchases
Raw material purchases are recorded in an
inventory account.
 Cost Flows – Material Usage
Direct materials issued to a job increase Work in Process and
decrease Raw Materials. Indirect materials used are
charged to Manufacturing Overhead and also decrease Raw
Materials.
 Cost Flows – Labor
The cost of direct labor incurred increases Work in
Process and the cost of indirect labor increases
Manufacturing Overhead.
 Cost Flows – Actual Overhead
In addition to indirect materials and indirect labor, other
manufacturing overhead costs are charged to the
Manufacturing Overhead account as they are incurred.
Cost Flows – Overhead Applied
Work in Process is increased when Manufacturing
Overhead is applied to jobs.
 Cost Flows – Period Expenses
Nonmanufacturing costs (period expenses) are charged
to expense as they are incurred.
 Cost Flows – Cost of Goods
Manufactured
As jobs are completed, the cost of goods manufactured
is transferred to Finished Goods from Work in Process.
 Cost Flows – Sales
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.
 JOB COSTING-TREATMENT
• MATERIAL
– REQUISTIONED FOR EACH JOB SEPERATELY
– INFORMATION FROM MATRL REQUISITION
– D.MATL DIRECTLY CHARGED TO JOB
– I.MATL ALLOCATED TO VARIOUS JOBS
• LABOUR
– CHARGED FOR EACH JOB
– INFORMATION FROM JOB TIME TICKET
• OVERHEADS
– ESTIMATED FOR VARIOUS COST CENTRES
– ALLOCTAED TO VARIOUS JOBS ON SUITABLE BASIS
– CAHRGED TO WIP BY ABSORBTION RATE
 JOB COSTING-RECORDING
• JOB
– JOB No. OR WORK ORDER No.
– JOB COST CARD (COLLECTS ALL COST DATA
RELATED TO JOB FROM
• MATERIAL REQUISITION NOTE
• JOB TIME SHEET
• JOB TICKETS
 JOB ORDER COST SHEET
PRODUCTION COST SHEET IDENTIFIED BY JOB No
ORDERS SET UP IN A/CG DEPTT

UNIT COST JOB ORDER

FOR JOB ORDER NOT FINISHED
COMPLETED •TOTAL COST INCURRED ON
JOB ORDER BRCOMES WIP
JOB ORDER •CARRIED FORWARD TO
DONE FINISHED SUBSEQUENT A/CG PERIOD AS
THROUGH OPENING STOCK

PRIME COST
+ABSORBD OVHD
•COST SHEET THAN MARKED COMPLETE
•REMOVED FROM JOB LEDGER
•ENTRY MADE IN FINISHED GOODS LEDGER