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Chapter

8
Job-Order Costing System
Job-Order Costing Systems a productcosting 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
Costing

Job-order
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
Costing

Job-order
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
1. Wide variety of distinct

Process Costing

1. Homogeneous products

products
2. Cost accumulated by job

2. Costs accumulated by
process or department

3. Unit cost computed by


dividing total job costs
by units produced on that
job

3. Unit cost computed by


dividing process costs of
the period by the units
produced in the period

BEAT
SOUTH
HIGH

Process or
job-order
costing?

Exxon oil refinery

Process

Coca Cola plant

Process

Custom home builder Job order


Shop for customizing vans Job order
Television repair shop

Job order

Campbell soup plant Process

Advertising agency
Law firm

Job order

Job order

Illustration 2-1

Job Order Cost System


Two Jobs: Wedding Invitations and Menus
$
Vellum stock $
Typesetting $
Yellow stock $
Lamination$
225 Envelopes
Yellow Stock
50 Copies $
$

Black ink $

Colored Ink

Typesetting $

225
Invitations $

Job #9501

Job #9502

Each job has distinguishing characteristics and related costs.

Illustration 3-2

Job-Order 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 JobOrder Costing System


Receive
orders from
customers

Schedule
jobs

Begin
production

Order
materials

Job Order Cost Flow

THE JOB

Two Major Steps in Cost Flow


Accumulating the
manufacturing costs incurred
Raw materials inventory
Factory Labor
Manufacturing Overhead

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
Receipts
Date Units Cost
Total
1/4
2,000
$5
$10,000

Issues
Units Cost Total

Part No: AA2746


Balance
Units Cost
Total
2,000
$5
$10,000

The sum of the balances of all these


records should equal raw materials in
the general ledger.

Direct Materials
Direct Labor

Manufacturing
Overhead

Job No. 1

Job No. 2
Job No. 3

Charge
direct
material and
direct labor
costs to
each job as
work is
performed.

Sequence of Events in a Job-Order Costing


System
Direct Materials
Job No. 1

Direct Labor

Job No. 2

Manufacturing Overhead

Job No. 3

Apply overhead to
each job using a
predeter-mined
rate.

The predetermined
overhead rate
(POHR) used to
apply overhead to
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


Lets investigate

Job-Order Cost Sheet

Job Cost
Sheet

July 1 Direct
100 lbs. @ $
0.25 = $Materials
25
3
75 oz. @
$1.40 = 105
July 1 Direct
3 hrs.
@
Labor
$10.00 = $ 30
3 7 hrs @
$10.00 =
70
Factory

July 7 10Overhead
dlh x $2
= $ 20

A job-cost sheet is a
document used to
accumulate the cost
for a specific job in a
job-cost system to
determine the total
and unit cost of the
completed job

The primary
document for
tracking the costs
associated with a
given job is the job
cost sheet.

Job-Order Cost Accounting

Job-Order Cost Accounting


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

Lets 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

Lets 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.

The materials requisition


indicates the cost of
direct material
to charge to
jobs and the cost of
indirect material to
charge to overhead.

Direct
material
Materials s
Materials
Ledger
Cards
Materials
Materials
Ledger
Cards
Materials
Ledger
Cards
Requisition
Requisition
Indirect
materials

Job Cost
Sheets

Manufacturing
Overhead
Account

Job-Order Costing
Document Flow Summary
An employees
time may be either
direct or indirect.

Employee time tickets


indicate the cost of
direct labor
to charge to
jobs
and the cost
of indirect labor to
charge to overhead.

Direct
Labor

Job Cost
Sheets

Employee Time
Ticket
Indirect
Labor

Manufacturing
Overhead
Account

Job-Order Costing
Document Flow Summary
Employee
Time Ticket

Other
Actual OH
Charges

Materials
Requisition

Indirect
Labor

Manufacturing
Applied
Overhead
Overhead
Account
With
POHR
Indirect
Material

Job Cost
Sheets

Job Order Cost Accounting


Lets examine the
cost flows in a joborder costing
system. We will use
T-accounts and start
with materials.

Raw Materials Inventory


(1)
42,000
(4)
30,000
Bal.
12,000

(2)

(4)
(5)
(6)
Bal.

Factory Labor
32,000
(5)
32,000
5

Flow of Costs

Work in Process Inventory


24,000
(7)
39,000
28,000
22,400
35,400

(7)

Finished Goods Inventory


39,000
(8)
39,000

(8)

Cost of Goods Sold


39,000

Key to Entries:
Manufacturing Overhead
(3)
13,800
(6)
22,400
(4)
6,000
(5)
4,000
Bal.
1,400

Accumulation
1. Purchase raw materials
2. Incur factory labor
3. Incur manufacuring
overhead

4.
5.
6.
7.
8.

Assignment
Raw materials are used
Factory labor is used
Overhead is applied
Completed goods are
recognized
Cost of goods sold is
recognized

Job-Order System Cost Flows


Work in Process
(Job Cost Sheet)

Raw Materials
Material
Purchases

Raw materials account


is debited for the cost
of materials purchased

Direct
Materials

Direct
Materials

Indirect
Materials

Raw materials account


is credited for the cost
of materials issued to
jobs

Mfg. Overhead
Actual
Indirect
Materials

Applied
Overhead control is
debited for the cost
of actual overhead

WIP debited for the


cost of materials
issued to jobs

Job-Order System Cost Flows

Next lets add


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

Job-Order System Cost Flows


Work in Process
(Job Cost Sheet)

Salaries and
Wages Payable
Wages payable is
credited for the cost
of direct labour

Direct
Labor

Direct
Materials

Direct
Labor

Indirect
Labor

Mfg. Overhead
Actual
Indirect
Materials

Indirect
Labor

Overhead is
credited
for
applied
overhead

Overhead
Applied

WIP is debited for


the cost of direct
labour
WIP is debited
for
applied
overhead

Applied
Overhead
Applied to
Work in
Process

Overhead applied using a


plant wide rate

If actual and applied


manufacturing overhead
are not equal, a year-end
adjustment is required.

Job-Order System Cost Flows

Now lets
complete the
goods and sell
them.

Job-Order System Cost Flows


Work in Process
(Job Cost Sheet)
Direct
Materials
Direct
Labor
Overhead
Applied

Cost of
Goods
Mfd.

Finished Goods
Cost of
Goods
Mfd.

Debit
finished
goods
for
COGM

Cost of Goods Sold


Credit WIP for
COGM

Cost of
Goods
Sold

Cost of
Goods
Sold

Debit COGS for


value of units
sold

Credit finished
goods
for
value of units
sold

Job-Order Costing Typical


Accounting Entries
Lets look at
summary journal
entries for a joborder costing
system. Well 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
ORDERS

UNIT COST
FOR JOB ORDER
COMPLETED

COST SHEET IDENTIFIED BY JOB No


SET UP IN A/CG DEPTT

JOB ORDER
NOT FINISHED

JOB ORDER
DONE FINISHED
THROUGH

TOTAL COST INCURRED ON


JOB ORDER BRCOMES WIP
CARRIED
FORWARD
TO
SUBSEQUENT A/CG PERIOD AS
OPENING STOCK

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