COST ACCOUNTING

Job Order Costing

Job Order Costing – is a system for allocating costs to groups of unique product. It is applicable to the production of
customer specified products such as the manufacture of special machines. Each job becomes a cost center for which costs
are accumulated. A subsidiary record (job cost sheet) is needed to keep track of all unfinished jobs (work in process) and
finished jobs (finished goods).

Characteristics of a job order cost system:

1. It collects all manufacturing costs and assigns them to specific job or batches of product.
2. It measures costs for each job, rather than for set time periods.
3. It uses just one WIP Inventory Control account in the general ledger. This account is supported by a subsidiary
ledger of job order cost cards or sheets for each job in process at any point of time.

Job Cost Sheet/Job Order Cost Sheet – shows the total cost incurred in the manufacture of a particular order and it
contains the following:
1. Job number 6. Direct labor section showing:
2. Job description a. the number of hours worked
3. Name and address of the customer b. the rate per hour
4. Date ordered and date of delivery c. the total cost of direct labor
5. Direct materials showing: 7. Overhead section (Applied FOH)
a. description of materials used
b. quantity of materials used
c. cost of materials

» In support of the materials to be issued to production, a Materials Requisition Form is accomplished. This form shows
the description, the quantity and the unit cost of materials issued to a particular job.

» The supporting document for labor cost is the Time Ticket. This shows the name of employee, the job he worked on and
the number of hours he worked on a particular job and his rate.

Methods of Accumulating Costs

1. Actual Costing – Actual DM, DL & FOH
2. Normal Costing – Actual DM, Actual DL & Applied FOH
3. Standard Costing – Standard DM, DL & FOH

Applied FOH = Std. FOH Rate X Actual Activity Driver (e.g., Actual DL Hours)
Standard FOH = Std. FOH Rate X Standard Activity Driver (e.g., Std. DL Hours)

Illustration: Job Order Cost Flow

Sunny Day Manufacturing Company has just started operation on July 1, 2014. The following are the transactions that
transpired during the month of July:
1. Purchased materials worth P350,000 on account.
2. Accepted three job orders from different customers and assigned Job No. 700-A, 700-B and 700-C.
3. Materials in the amount of P200,000 requisitioned and issued. 30% for Job 700-A, 25% for Job 700-B, and 35% for
Job 700-C. The balance represents indirect materials.
4. Payroll for the month totaled P357,200. Analysis of the payroll shows:
Job 700-A 8,840 hours P 88,400
Job 700-B 11,650 hours 116,500
Job 700-C 11,980 hours 119,800
Indirect labor 32,500
5. The following overhead were incurred during the month in addition to indirect materials and indirect labor:
Maintenance of factory equipment P 10,000
Utilities (power, light & water) 25,000
Depreciation of factory plant & equipment 15,000
Insurance expired 8,000
Miscellaneous factory expenses 5,000

6. The company’s policy is to apply overhead to each job at the rate of P3.50 per direct labor hour. Any overhead
variance is closed to cost of goods sold.
7. Job Nos. 700-A and 700-B are completed and billed the customers at cost plus 40% mark-up.

Required:
1. Journal entries to record the transactions for the month.
2. Prepare T-Accounts for Raw Materials, Work in Process, Finished Goods, Manufacturing Overhead and Cost of Goods
Sold accounts.
 EXERCISES

1. During June 2014, Nanny Company worked on two jobs. Data relating to these two jobs follows:
Job 100 Job 200
Units in each order 1,200 2,000
Units sold 1,200 -
Materials requisitioned P7,440 P6,400
Direct labor hours 3,600 4,000
Direct labor rate per hour P30 P32

Overhead is applied on the basis of direct labor hours at a rate of P37.50. During June, Job 100 was completed &
delivered to a customer at 125% of cost. Job 200 was the only unfinished job at the end of the month. How much is
the gross margin for the month of product sold?
a. P62,610 b. P303,050 c. P250,440 d. P279,300

2. Given the following data:

Estimated manufacturing overhead P 1,380,000

Estimated machine hours 46,000
Actual machine hours worked 50,000
Actual costs incurred:
Indirect materials P 340,000
Indirect labor 460,000
Utilities 240,000
Insurance 200,000
Rent 160,000

The company uses a predetermined overhead rate to apply overhead.

Manufacturing overhead applied is

a. P1,500,000 b. P1,400,000 c. P1,380,000 d. P1,296,000

3. Mangga, Inc. employs a job order cost system. Its manufacturing activities in July 2014, its first month of operation,
are summarized as follows:

JOB NUMBERS
201 202 203 204
Direct Materials P7,000 P5,800 P11,600 P5,000
Direct Labor Cost 6,600 6,000 8,400 2,400
Direct Labor Hours 1,100 1,000 1,400 400
Units produced 200 100 1,000 300

Manufacturing overhead is applied at a rate of P2 per direct labor hour to variable overhead, P3 per hour for fixed
overhead.

Jobs 201, 202 and 203 were completed in July.

What is the cost of the completed jobs?

a. P62,900 b. P62,500 c. P72,900 d. P65,900

4. Job No. 210 has, at the end of the second week in February, an accumulated total cost of P4,200. In the third
week, P1,000 of direct materials were used on the job, together with P10 of indirect materials. Twenty hours of
direct labor services were applied to the job at a cost of P5 per hour. Manufacturing overhead was applied at the
basis of P2.50 per direct labor hour for fixed overhead and P2 per hour for variable overhead. Job No. 210 was the
only job completed during the third week.

The total cost of Job Order No. 210 is:

a. P5,390 b. P5,360 c. P5,350 d. P5,400

5. The Grapes Company uses a job order cost accounting system. Overhead is applied to production at a predetermined
rate based on direct labor cost.

The following postings appear in the ledger accounts of the company for the month of September, 2014:
Work in Process, Sept. 1 P 30,000
Direct Materials 60,000
Factory Overhead 40,000
Direct Labor 50,000
 On September 30, 2014, finished goods completed, from work in process cost P160,000. Job No. 327 was the only
job not completed in September, and it has been charged P4,600 for factory overhead.

Direct materials charged to Job No. 327 was:

a. P10,350 b. P14,650 c. P9,650 d. P25,000

6. The work in process account of the Misamis Company which uses a job order cost system follows:

Work in Process
April 1 balance P 25,000 Finished goods P 125,450
Direct materials 50,000
Direct labor 40,000
FOH applied 30,000

Overhead is applied to production at a predetermined rate, based on direct labor cost. The work in process at April
30 represents the cost of Job No. 456, which has been charged with direct labor cost of P3,000 and Job No. 789,
which has been charged with applied overhead of P2,400.

The cost of direct materials charged Job No. 456 and Job No. 789 amounted to:
a. P8,700 b. P7,600 c. P4,500 d. P4,200

7. Crack Co. uses a job order costing system. During August 2015, the following costs appeared in the WIP Inventory
account:
Beginning balance P 192,000
Direct materials used 560,000
Direct labor incurred 480,000
Applied overhead 384,000
Cost of goods manufactured 1,480,000

Crack Co. applies overhead on the basis of direct labor cost. There was only one job left in WIP at the end of August
which contained P44,800 of overhead.

What amount of direct material was included in this job?

a. P35,200 b. P35,840 c. P55,360 d. P64,000

8. ABC Corp. has a job order cost system. The following debits (credits) appeared in WIP for the month of July:
July 1 balance P 36,000
July 31, direct materials 120,000
July 31, direct labor 90,000
July 31, factory overhead 81,000
July 31, to finished goods (300,000)

ABC applies overhead to production at a predetermined rate of 75% based on the direct labor cost. Job 1040, the
only job still in process of July, has been charged with factory overhead of P6,750. What was the amount of direct
materials charged to Job 1040?
a. P7,500 b. P12,750 c. P20,250 d. P11,250

Items 9 and 10 are based on the following data:

The following selected data were taken from the books of the Bixby Box Company. The company uses job order
costing to account for manufacturing costs. The data relate to June operations:
A. Materials and supplies were requisitioned from the stores clerk as follows:
Job 405, material X, P7,000.
Job 406, material X, P3,000; material Y, P6,000.
Job 407, material X, P7,000; material Y, P3,200.
For general factory use: materials A, B, and C, P2,300.

B. Time tickets for the month were chargeable as follows:

Requisition No. Amount No. of Hours
Job No. 405 P 11,000 3,000
Job No. 406 14,000 3,600
Job No. 407 8,000 1,900
Indirect labor 3,700

C. Other information:
• Factory paychecks for P35,200 were issued during the month.
• Various factory overhead charges of P19,400 were incurred on account.
• Depreciation of factory equipment for the month was P5,400.
• Factory overhead was applied to jobs at the rate of P3.50 per direct labor hour.
 • Job orders completed during the month: Job 405 and Job 406.
• Selling and administrative costs were P2,100.

9. If Job 406 were sold on account for P41,500, how much gross profit would be recognized?
a. P3,800 b. P5,900 c. P18,500 d. P35,600

10. The balance in the factory overhead account would represent the fact that overhead was
a. P1,050 underapplied b. P1,250 underapplied c. P3,150 overapplied d. P4,350 overapplied

11. Wilma Company has underapplied overhead of P45,000 for the year. Before disposition of the underapplied over head,
selected year-end balances from Wilma’s accounting records were:
Sales P 1,200,000
Cost of goods sold 720,000
Direct materials inventory 56,000
Work in process inventory 54,000
Finished goods inventory 90,000

Under Wilma’s cost accounting system, over or under-applied overhead is allocated to appropriate inventories and
COGS based on year-end balances. In its year-end income statement, Wilma should report COGS of
a. P682,500 b. P684,000 c. P757,500 d. P765,000

12. Jackson Company uses a job order costing system and the following information is available from its records. The
company has three jobs in process: Nos. 6, 9 and 13.
Raw materials used P 120,000
Direct labor rate per hour P 8.50
Overhead applied based on direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30%, 25% and 25%; the balance of the
requisitions was considered indirect. Direct labor hours per job are 2,500; 3,100; and 4,200; respectively. Indirect
labor is P33,000. Other actual overhead costs totaled P36,000.

If Job No. 13 is completed and transferred, what is the balance in Work in Process Inventory at the end of the period
if overhead is applied at the end of the period?
a. P96,700 b. P99,020 c. P139,540 d. P170,720

13. The following information pertains to Beta Company for September 2013:
Direct Material Direct Labor Overhead
Job No. 323 P 3,200 P 4,500 ?
Job No. 325 ? 5,000 ?
Job No. 401 5,670 ? P 5,550

Beta Company applies overhead for Job No. 323 at 140% of direct labor cost and at 150% of direct labor cost for Job
Nos. 325 and 401. The total cost of Job Nos. 323 and 325 is identical.

Assume that Job Nos. 323 and 401 are incomplete at the end of September. What is the balance in Work in Process
Inventory at that time?
a. P18,920 b. P22,620 c. P28,920 d. P30,120

14. Sunshine Mfg. Co. charges factory overhead to production at a predetermined rate based on direct labor cost. The
rate has remained the same for the last two years. The following data are given on its production:

Job No.1 Job No.2 Job No.3 Job No.4 Total

WIP – Jan. 1
DM P 8,000 P 15,000 P 23,000
DL 3,200 6,500 9,700
FOH Applied 1,920 3,900 5,820
Costs added – January
DM 3,000 8,500 P 18,000 P 9,500 39,000
DL 1,200 3,150 7,500 2,700 14,550

Job Nos. 1, 2 and 3 were completed during the month. Job Nos. 1 and 3 were sold at 180% of cost. The balance of
the FOH control account is P11,640.

The variance is allocated between COGS, FG and WIP as follows:

COGS FG WIP COGS FG WIP
a. P870 P1,500 P540 c. P1,740 P630 P540
b. 2,380 1,930 540 d. None of the given
 QUIZZER

1. The source document that records the amount of raw material that has been requested by production is the
a. job order cost sheet b. bill of lading c. inter-office memo d. material requisition

2. A material requisition form should show all of the following information except
a. job number b. quantity required c. unit cost d. purchase order number

3. Which of the following statements about job order cost sheets is true?
a. All job order cost sheets serve as the general ledger control account for Work in Process Inventory.
b. Job order cost sheets can serve as subsidiary ledger information for both Work in Process Inventory and Finished
Goods Inventory.
c. If material requisition forms are used, job order cost sheets do not need to be maintained.
d. Job order cost sheets show costs for direct material and direct labor, but not for manufacturing overhead since it
is an applied amount.

4. The primary accounting document in a job order costing system is a(n)

a. bill of materials b. job order cost sheet c. employee time sheet d. materials requisition

5. The cost sheets for incomplete jobs at the end of the period comprise the subsidiary ledger for
a. Finished Goods Inventory c. Work in Process Inventory
b. Raw Material Inventory d. Supplies Inventory

6. The __________ provides management with an historical summation of total costs for a given product.
a. job order cost sheet c. material requisition form
b. employee time sheet d. bill of lading

7. Manufacturing overhead application

a. rates are applied within a range of 35 to 60 percent of direct labor.
b. is performed at the beginning of the period.
c. rates fluctuate during the period with changes in production quantities.
d. rates are calculated by dividing budgeted overhead by a budgeted quantity of some cost driver.

8. The source document that records the amount of time an employee worked on a job and his/her pay rate is the
a. job order cost sheet b. employee time sheet c. interoffice memo d. labor requisition form

9. Overhead is applied to jobs in a job order costing system

a. at the end of a period.
b. as jobs are completed.
c. at the end of a period or as jobs are completed, whichever is earlier.
d. at the end of a period or as jobs are completed, whichever is later.

10. In a job order costing system, the subsidiary ledger for Finished Goods Inventory is comprised of
a. all job order cost sheets.
b. job order cost sheets for all uncompleted jobs.
c. job order cost sheets for all completed jobs not yet sold.
d. job order cost sheets for all ordered, uncompleted, and completed jobs.

11. Underapplied overhead resulting from unanticipated and immaterial price increases for overhead items should be
written off by
a. decreasing Cost of Goods Sold.
b. increasing Cost of Goods Sold.
c. decreasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods Inventory.
d. increasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods Inventory.

12. Which of the following organizations would be most likely to use a job order costing system?
a. the loan department of a bank c. a manufacturer of processed cheese food
b. the check clearing department of a bank d. a manufacturer of video cassette tapes

13. In a job order costing system,

a. standards cannot be used.
b. an average cost per unit within a job cannot be computed.
c. costs are accumulated by departments and averaged among all jobs.
d. overhead is typically assigned to jobs on the basis of some cost driver.
14. When job order costing is used, the primary focal point of cost accumulation is the
a. department b. supervisor c. item d. job
15. What is the best cost accumulation procedure to use when many batches, each differing as to product specifications,
are produced?
a. job order b. process c. actual d. standard

16. The use of standard material or labor costs in job order costing
a. is similar to the use of predetermined overhead rates in a normal costing system.
b. will keep actual costs of jobs from fluctuating due to changes in component costs.
c. is appropriate for any company making a units to customer specification.
d. all of the above.

17. After the completion of production, standard and actual costs are compared to determine the ______ of the
production process
a. effectiveness b. complexity c. homogeneity d. efficiency

18. A service organization would be most likely to use a predetermined overhead rate based on
a. machine hours c. direct labor
b. standard material cost d. number of complaints

19. By knowing specific job costs, managers are better able to

a. estimate costs of future jobs. c. evaluate job performance.
b. establish realistic job selling prices. d. all of the above.

20. As product variety increases,

a. job order costing becomes less useful.
b. production lot sizes decrease.
c. standard costs in job order costing systems cannot be used.
d. all of the above.

21. A job order costing system is likely to provide better

(1) Inventory valuations for financial statements.
(2) Control over inventory.
(3) Information about ability to accept additional production work.

(1) (2) (3)

a. yes no no
b. no yes yes
c. no no no
d. yes yes yes

22. In a production environment that manufactures goods to customer specifications, a job order costing system
a. can be used only if standard costs are used for materials and labor.
b. will provide reasonable product cost information only when all jobs utilize approximately the same quantities of
material and labor.
c. may be maintained using either actual or predetermined overhead rates.
d. emphasizes that large customers create the most costs even though they also provide the most revenues.

23. Which of the following could not be used in job order costing?
a. standards
b. an average cost per unit for all jobs
c. normal costing
d. overhead allocation based on the job’s direct labor hours

24. C Co. uses a job order costing system. During April 2015, the following costs appeared in the Work in Process
Inventory account:
Beginning balance P 24,000
Direct material used 70,000
Direct labor incurred 60,000
Applied overhead 48,000
Cost of goods manufactured 185,000

C Co. applies overhead on the basis of direct labor cost. There was only one job left in WIP Inventory at the end of
April which contained P5,600 of overhead. What amount of direct material was included in this job?
a. P4,400 b. P4,480 c. P6,920 d. P8,000

25. Q Co. is a print shop that produces jobs to customer specifications. During January 2015, Job #1253 was worked on
and the following information is available:
Direct material used P2,500
Direct labor hours worked 15
Machine time used 6
 Direct labor rate per hour P7
Overhead application rate per
hour of machine time P18

What was the total cost of Job #1253 for January?

a. P3,025 b. P2,812 c. P2,770 d. P2,713

Use the following information for questions 26–28.

Ark Co. uses a job order costing system. At the beginning of January, the company had 2 jobs in process w ith the
following costs:
Direct Material Direct Labor Overhead
Job #456 P3,400 P510 P255
Job #461 1,100 289 ?

Ark pays its workers P8.50 per hour and applies overhead on a direct labor hour basis.

26. What is the overhead application rate per direct labor hour?
a. P0.50 b. P2.00 c. P4.25 d. P30.00

27. How much overhead was included in the cost of Job #461 at the beginning of January?
a. P144.50 b. P153.00 c. P2,200.00 d. P2,456.50

28. During January, Ark employees worked on Job #479. At the end of the month, P714 of overhead had been applied to
this job. Total Work in Process Inventory at the end of the month was P6,800 and all other jobs had a total cost of
P3,981. What amount of direct material is included in Job #479?
a. P677 b. P1,391 c. P2,142 d. P4,658

29. Black Corp. manufactures products on a job order basis. The job cost sheet for Job #329 shows the following for
March:
Direct material P5,000
Direct labor (100 hours @ P7.25) P725
Machine hours incurred 40
Predetermined overhead rate per
machine hour P26

At the end of March, what total cost appears on the job cost sheet for Job #329?
a. P5,725 b. P5,765 c. P6,765 d. P8,325

30. Products at Green Manufacturing are sent through two production departments: Fabricating and Finishing. Overhead
is applied to products in the Fabricating Dept. based on 150 percent of direct labor cost and P18 per machine hour in
Finishing. The following information is available about Job #639:

Fabricating Finishing
Direct material P1,590 P580
Direct labor cost ? 48
Direct labor hours 22 6
Machine hours 5 15
Overhead applied 429 ?

What is the total cost of Job #639?

a. P2,647 b. P3,005 c. P3,093 d. P3,203

31. Carolina Co. applies overhead to jobs at the rate of 40 percent of direct labor cost. Direct material of P1,250 and
direct labor of P1,400 were expended on Job #44 during June. At May 31, the balance of Job #44 was P2,800. The
June 30th balance is
a. P3,210 b. P4,760 c. P5,450 d. P6,010

Use the following information for questions 32–37:

Adams Co. uses a job order costing system and the following information is available from its records. The company
has 3 jobs in process: #5, #8, and #12.
Raw material used P 120,000
Direct labor per hour 8.50
Overhead applied based on direct labor cost 120%
 Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent, and 25 percent; the
balance of the requisitions was considered indirect. Direct labor hours per job are 2,500; 3,100; and 4,200;
respectively. Indirect labor is P33,000. Other actual overhead costs totaled P36,000.

32. What is the prime cost of Job #5?

a. P42,250 b. P57,250 c. P73,250 d. P82,750

33. What is the total amount of overhead applied to Job #8?

a. P18,250 b. P26,350 c. P30,000 d. P31,620

34. What is the total amount of actual overhead?

a. P36,000 b. P69,000 c. P93,000 d. P99,960

35. How much overhead is applied to Work in Process?

a. P69,000 b. P99,960 c. P132,960 d. P144,000

36. If Job #12 is completed and transferred, what is the balance in Work in Process Inventory at the end of the period if
overhead is applied at the end of the period?
a. P96,700 b. P99,020 c. P170,720 d. P139,540

37. Assume the balance in Work in Process Inventory was P18,500 on June 1 and P25,297 on June 30. The balance on
June 30 represents one job that contains direct material of P11,250. How many direct labor hours have been worked
on this job (rounded to the nearest hour)?
a. 751 b. 1,324 c. 1,653 d. 2,976

Use the following information for questions 38–41.

The following information pertains to XYZ Co. for September 2014.

Direct Material Direct Labor Overhead

Job #123 P3,200 P4,500 ?
Job #125 ? 5,000 ?
Job #201 5,670 ? P5,550

XYZ Co. applies overhead for Job #123 at 140 percent of direct labor cost and at 150 percent of direct labor cost for
Jobs #125 and #201. The total cost of Jobs #123 and #125 is identical.

38. What amount of overhead is applied to Job #123?

a. P4,800 b. P5,550 c. P6,300 d. P7,500

39. What amount of overhead is applied to Job #125?

a. P8,325 b. P7,500 c. P7,000 d. P5,000

40. What is the amount of direct material for to Job #125?

a. P1,950 b. P1,500 c. P3,700 d. P7,500

41. Assume that Jobs #123 and #201 are incomplete at the end of September. What is the balance in Work in Process
Inventory at that time?
a. P18,920 b. P22,620 c. P28,920 d. P30,120

Use the following information for questions 42–44.

Baker Co. has two departments (Processing and Packaging) and uses a job order costing system. Baker applies
overhead in Processing based on machine hours and on direct labor cost in Packaging. The following information is
available for July:
Processing Packaging
Machine hours 2,500 1,000
Direct labor cost P44,500 P23,000
Applied overhead P55,000 P51,750
42. What is the overhead application rate per machine hour for Processing?
a. P22.00 b. P1.24 c. P17.80 d. P0.81

43. What is the overhead application rate for Packaging?

a. P23.00 b. P51.75 c. P2.25 d. P0.44

44. Which of the following conclusions would be reasonable to draw from the Baker Co.’s overhead application system?
a. The Processing Department has many unskilled workers.
 b. The Processing Department is highly automated.
c. The Packaging Department is more cost-efficient than the Processing Department.
d. The Packaging Department would be a good candidate for downsizing.

Use the following information for questions 45 and 46:

Zew Co. has a job order costing system and an overhead application rate of 120 percent of direct labor cost. Job
#33 is charged with direct material of P12,000 and overhead of P7,200. Job #34 has direct material of P2,000 and
direct labor of P9,000.

45. What amount of direct labor cost has been charged to Job #33?
a. P6,000 b. P8,640 c. P7,200 d. P14,400

46. What is the total cost of Job #34?

a. P30,200 b. P21,800 c. P11,000 d. P10,800

Use the following information for questions 47 and 48.

Kool Co. uses a job order costing system. Assume that Job #101 is the only one in process. The following
information is available:
Budgeted direct labor hours 65,000 Budgeted machine hours 9,000
Budgeted overhead P 350,000 Direct material P 110,500
Direct labor cost 70,000

47. What is the overhead application rate if Kool uses a predetermined overhead application rate based on direct labor
hours (rounded to the nearest whole peso)?
a. P0.20 b. P5.00 c. P5.38 d. P38.89

48. What is the total cost of Job #101 assuming that overhead is applied at the rate of 135 percent of direct labor cost
(rounded to the nearest whole peso)?
a. P192,650 b. P268,250 c. P275,000 d. P329,675

49. At the end of the last fiscal year, Bare Company had the following account balances:
Overapplied overhead P 6,000
Cost of Goods Sold 980,000
Work in Process Inventory 38,000
Finished Goods Inventory 82,000

If the most common treatment of assigning overapplied overhead was used, the final balance in Cost of Goods Sold
would have been
a. P985,340 b. P974,660 c. P974,000 d. P986,000

50. Carley Products has no Work in Process or Finished Goods inventories at the close of business on December 31,
2014. The balances of Carley’s accounts as of December 31, 2015, are as follows:
Cost of goods sold P 2,040,000
Selling & administrative expenses 900,000
Sales 3,600,000
Manufacturing overhead control 700,000
Manufacturing overhead applied 648,000

Carley Products’ pretax income for 2015 is

a. P608,000
b. P660,000
c. P712,000
d. undeterminable from the information given.