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Job Costing Handout

Job costing is a system used by businesses that make customized products or services in limited quantities. All costs for each job are collected separately. Key terms include predetermined overhead rate, applied overhead, cost drivers, cost objects, cost pools, direct and indirect costs, job order sheets, and time sheets. Direct materials and labor costs are assigned to jobs, while manufacturing overhead is allocated using a predetermined overhead rate or activity-based costing. Completed jobs become finished goods, while incomplete jobs remain work-in-process.

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31 views4 pages

Job Costing Handout

Job costing is a system used by businesses that make customized products or services in limited quantities. All costs for each job are collected separately. Key terms include predetermined overhead rate, applied overhead, cost drivers, cost objects, cost pools, direct and indirect costs, job order sheets, and time sheets. Direct materials and labor costs are assigned to jobs, while manufacturing overhead is allocated using a predetermined overhead rate or activity-based costing. Completed jobs become finished goods, while incomplete jobs remain work-in-process.

Uploaded by

Chise Yukari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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HANDOUT

Subject: Cost and Management Accounting (unit 2)


Grade: 6th Form
Teacher: Ms. Laing
MODULE 2: COST SYSTEMS
TOPIC: COST SYSTEMS
SUBTOPIC: JOB COSTING
Common types of Costing Systems include:

- Job Costing
- Process Costing
- Activity-Based Costing

Job Costing is a cost accounting system that is used by businesses that make a limited
quantity of products or provide a limited number of services uniquely tailored to customer
specification. This system is especially appropriate and useful for many service businesses, such
as advertising, legal, construction and accounting firms. All costs are collected at each job.

Terms associated with Job Costing


- Predetermined Overhead Rate (POHR) – an estimate constant charge per unit
of activity used to assign overhead cost to production or services.
- Applied overhead – this is the amount of overhead that has been assigned to the
work-in-progress inventory using a predetermined overhead rate (POHR).
- Cost Driver- a factor that has a direct cause-effect relationship to a cost; an activity
creating a cost.
- Cost Object- anything to which costs are attached or are related.
- Cost Pool- A collection of monetary amounts incurred either for the same purpose or at
the same organizational level or because of the occurrence of the same cost driver.
- Direct Labor
- Direct Material
- Indirect Cost
- Job- a single unit or group of units identifiable as being produced to distinct customer
specifications.
- Job Order Sheet- A source document that provides practically all the financial
information about a particular job.
- Material Requisition Form- a source document that indicates the types and
quantities of material to be placed into production or used in performing a service.
- Over Applied Overhead- when the overhead amount is greater than the actual that
was incurred, it means that too much overhead was applied to the production during the
period.
- Under Applied Overhead- when the applied overhead amount is less than the
actual that was incurred; it means that too little overhead was applied to production
during the period.
- Overhead
- Time Sheet- a source document that indicates, for each employee, what jobs were
worked on during the day and for amount of time.
Flow of Cost
• Direct materials and direct labor are assigned and manufacturing overhead is allocated using a
pre-determined overhead rate (POHR) or overhead absorption rate using activity-based costing.
Predetermined overhead rate {POHR} = Total Budgeted Annual Overhead
Estimated measure activity level during period.
• Jobs to which costs are assigned or allocated and are complete are considered work-in-process
(WIP).
• All jobs that are completed at the end of the period are finished goods and incomplete jobs are
ending WIP inventory. • Finished goods that are sold are called cost of goods sold and unsold
finished jobs of the end of the period are ending finished goods inventory.

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