Job costing

1
Job Costing

Job costing is a product costing method

adopted by an enterprise that provides
limited quantities of unique products
This kind of enterprise produces tailor-
made goods or services that conform to
the specifications designed by customer
Costs can be determined separately for
each job order
2
Costing under three different
method
Actualcosting
Normal costing
Standard costing

3
Costing system Production cost

Actual costing Actual direct materials +

Actual labour + Actual
overhead
Normal costing Actual direct material +
Actual direct labour +
Applied overhead (I.e.
Per-determined overhead
rate * actual level of
productivity)
Standard costing Standard direct material
+ standard direct labour +
applied overhead 4
Which one better?

Normal product costing and standard

costing are preferable

5
Reasons
Under actual costing, the product cost will be
delayed until the end of the accounting
period. However, the product cost should be
obtained beforehand for setting selling price
Since monthly productivity may vary due to
holiday periods and seasonal variation, actual
overhead is fluctuating and cannot reflect
normal production conditions

6
Flow chart
direct
indirect Delivery of materials to job

Work
indirect direct
Payment of wages to workers
In

Progress
Charging of applied overhead
Costs to work in progress

sold
Cost of sales

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Accounting entries
Dr. Store ledger control
Cr. Cost ledger control
To record the purchase of materials

Dr. WIP (direct)

Dr. manufacturing overhead (indirect)
Cr. Store ledger control
To record direct and indirect material issued

Dr. wages control

Cr. Cost ledger control
To record wages paid

Dr. WIP (direct)

Dr. Manufacturing overhead (indirect)
Cr. Wages control
To record direct and indirect wages incurred 8
Accounting entries
Dr. Manufacturing overhead
Cr. Cost ledger control
To record indirect expenses

Dr. WIP
Cr. manufacturing overhead
To apply overhead using predetermined overhead absorption rate

Dr. Cost of sales

Cr. WIP control
To record cost of sales of goods produced

Dr. Cost of sales

Cr. Other overhead
To record other applied overhead charged to cost of sales

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Accounting entries
Dr. Costing Profit and loss
Cr. Cost of sales
Cr. Under-absorbed overheads /Dr. Over-absorbed overheads
To transfer the balance of cost of sales and under- / over-
absorbed overheads to profit and loss account

Dr. Cost ledger control

Cr. Costing Profit and loss
To transfer the sale value of jobs completed

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Example
Refer to textbook P.198

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Job Account

Job 682
Bal b/f 2310 Job 683 a/c material transfer 900
Materials 9780 Material return 1600
Wages 3000 Cost of sales 14090
Factory overhead (3000*50%) 1500

16590 16590

Job 683
Materials 7480
Job 683 a/c material transfer 900
Wages 4000
Material return 1600
Factory overhead (4000*50%) 2000
Cost of sales 14090
Job 682 a/c material transfer 900
Job 684 a/c Material transfer 500
14880 14880

12
 Job 684
Materials 7900 Job 683 a/c material transfer 500
Wages 2500
Factory overhead (2500*50%) 1250 Cost of sales 11150

11650 11650

Job 685
Materials 8840
Material return 340
Wages 2500
Factory overhead (2500*50%) 1250
Cost of sales 12250

12590 12590

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Job Cost Sheet

1260+9780-900-1600
Job 682 Job 683 Job 684 Job 685
Materials 8540 3000+700 8880 7400 8500
Wages 3700 4000 2500 2500
Factory overhead 1850 1500+350 2000 1250 1250
Factory cost 14090 14880 11150 12250
Adm. Overhead
(20%) 2818 2976 2230
Cost of sales 16908 17586 13380
Sales value 21000 24000 16000
Profit/ (Loss) 4092 6144 2620

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Control Accounts
Store ledger control account
Bal b/f 8400 WIP control (issue direct material 34000
Cost ledger control (purchase) 31000 Factory O/H control (issue indirect
WIP control (material return Material 3000
to store) 1940 Bal c/f 4340

41340 41340

Wages control account

Cost ledger control ((wages WIP control (direct labour) 12000
paid) (12000+1000) 13000 Factory O/H control ( indirect
Labour) 1000

54310 54310

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 Estimated overhead absorbed
Actual overhead
Factory overhead control account
Store ledger control (indirect) 3000 WIP control (12000*50%) 6000
Wages control (indirect) 1000
Cost ledger control
- Factory indirect exp. 2600 Under-absorbed overhead 600

6600 6600

Work in progress control account

Bal b/f 2310 Store ledger control return 1940
Store ledger control (direct) 34000
Cost of sales (14090+14880
Wages control (direct) 12000
+11150) 40120
Factory O/H (O/H absorbed) 6000
Bal c/f 12250

54310 54310

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 Estimated overhead absorbed
Actual overhead
Admin & marketing overhead control account
Cost ledger control (actual) 7950 Cost of sales 8024
1000 (2818+2976+2230)
Over-absorbed overhead 74

8024 8024

Under - / Over- absorbed overhead control

Factory overhead control Admin & Marketing overhead
- Under absorbed 600 - Over absorbed 74
Costing profit and loss 526

600 600

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 Cost of Sales
WIP control 40120 Costing profit and loss 48144
Admin & marketing O/H 8024
481444 48144

Costing profit and loss

Cost of sales 48144 Cost ledger control sales 61000
Under-absorbed overhead 526
Cost ledger control net profit 12330
61000 61000
Cost ledger control account
Costing profit and loss - sales 61000 Bal b/f 10710
Bal c/d (12250 + 4340) 16590 Store ledger control 31000
Wages control 13000
Factory overhead control 2600
Admin & Marketing O/H control 7950
Consolidated profit and loss 12330

77590 18
77590