JOB ORDER COSTING
Job Order Costing
In job order costing (job costing),
production costs are accumulated for each
separate job. A job is the output identified
to fill a certain customer order to replenish
an item of stock on hand.
Job Order Costing
For job costing to be effective, job must be
separately identifiable. For the detail of the
job to be worth the effort, there must be
important differences in unit costs from
one job to another.
Job Order Costing
Details of a job are recorded on a job order
cost sheet (cost sheet), which can be in
paper or electronic form. Each cost sheet
collects only details for one specific job.
Job Order Costing
Job order costing accumulates the costs of
direct materials, direct labor, and overhead
charged to each job. Materials accounting
maintains materials inventory records,
charges direct materials to jobs, and
charges indirect materials to overhead.
Job Order Costing
Labor accounting maintains payroll-related
accounts, charges direct labor to jobs, and
charges indirect labor to overhead.
Job Order Costing
Overhead accounting accumulates overhead
costs, maintains overhead detail records, and
charges a share of overhead to each job.
Manufacturing overhead is applied to jobs that
are in process. An allocation base, such as
direct labor hours, direct labor dollars, or
machine hours, is used to assign
manufacturing overhead to individual jobs.
Illustration 1
Job 1 at NW Fab, Inc. required P100 of direct
materials and 5 direct labor hours at P7.5 per
hour. Estimated total overhead for the year was
P380,000 and estimated direct labor hours were
10,000. What would be recorded as the cost of
Job 1?
Journal Entries and T-account: Materials
Journal Entries and T-account: Materials
To record purchase of raw materials:
Raw materials xx
Accounts payable/Cash xx
Journal Entries and T-account: Materials
Direct materials issued to a job increase work in
process and decrease raw materials. Indirect
materials used are charged to manufacturing
overhead and decrease raw materials.
Work in Process xx
Manufacturing overhead
Raw Materials xx
Journal Entries and T-account: Labor
Journal Entries and T-account: Labor
The cost of direct labor incurred increases work in
process and the cost of indirect labor increases
manufacturing overhead.
Work in process xx
Manufacturing overhead xx
Salaries and wages payable xx
Journal Entries and T-account: Overhead
In addition to
indirect materials
and indirect labor,
other actual
manufacturing
overhead costs are
debited to the
manufacturing
overhead account.
Journal Entries and T-account: Overhead
Manufacturing overhead xx
Various accounts* xx
*Various accounts may include property taxes,
accounts payable, insurance, depreciation and other
expenses related to the job but not directly
identifiable.
Journal Entries and T-account: Overhead
An overhead is applied to the job based on a
predetermined overhead rate, if actual and
applied manufacturing overhead are not equal, a
year-end adjustment is required.
Journal Entries and T-account: Overhead
Journal Entries and T-account: Overhead
Work in process is increased when manufacturing
overhead is applied to jobs.
Work in process xx
Manufacturing overhead xx
Nonmanufacturing costs are not assigned to
individual jobs, rather they are expensed in the period
incurred.
Cost of Goods Manufactured and Cost of
Goods Sold
Cost of Goods Manufactured and Cost of
Goods Sold
As jobs are completed, the cost of goods
manufactured is transferred to finished goods
from work in process.
Finished goods xx
Work in process xx
Cost of Goods Manufactured and Cost of
Goods Sold
Cost of Goods Manufactured and Cost of
Goods Sold
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.
Cost of Goods Manufactured and Cost of
Goods Sold
Accounts receivable/Cash xx
Sales xx
Cost of goods sold xx
Finished goods xx
Cost of Goods Manufactured and Cost of
Goods Sold
The difference between the overhead cost
applied to work in process and the actual
overhead costs of a period is termed either
underapplied or overapplied overhead.
Cost of Goods Manufactured and Cost of
Goods Sold
Underapplied overhead exists when the amount
of overhead applied to jobs during the period
using the predetermined overhead rate is less
than the total amount of overhead actually
incurred during the period.
Cost of Goods Manufactured and Cost of
Goods Sold
Overapplied overhead exists when the amount
of overhead applied to jobs during the period
using the predetermined overhead rate is
greater than the total amount of overhead
actually incurred during the period.
Illustration 2
Tiger, Inc. had actual manufacturing overhead
costs of P1,210,000 and a predetermined
overhead rate of P4.00 per machine hour. Tiger,
Inc. worked 290,000 machine hours during the
period. What is Tiger’s over- or underapplied
overhead?
Illustration 3
Granite Company uses a job-order costing
system. The company applies manufacturing
overhead to jobs using a predetermined
overhead rate based on direct labor-hours. Last
year, manufacturing overhead and direct labor-
hours were estimated at P80,000 and 16,000
hours respectively, for the year. In June, Job 3
was completed.
Illustration 3
Materials costs on the job totaled P1,500 and
labor costs totaled P2,400 at P6 per hour. At the
end of the year, it was determined that the
company worked 15,000 direct labor-hours for
the year, and incurred P78,000 in actual
manufacturing overhead costs.
Illustration 3
Compute the following:
a. Predetermine overhead rate for the year.
b. The amount of overhead charged to jobs during
the year.
c. The amount of underapplied/ overapplied
overhead for the year.
d. Assuming that 100 units were completed,
determine the unit cost that would appear on
the job cost sheet for Job 3?
End
Sample 1
The work in process account of F Co. showed:
Work in Process
Materials P 15,500 Finished goods P 37,500
Direct labor 14,750
Factory overhead 11,800
Sample 1
Materials charged to the one job still in process
amounted to P3,200. Factory overhead is applied as
a predetermined percentage of direct labor cost.
Compute the amount of the following in relation to
finished goods:
1. Direct labor cost
2. Factory overhead
Sample 2
Information concerning T Co.’s manufacturing
activities for December follows:
Inventories
December 1 December 31
Finished goods P 12,000
Direct materials P 5,000
Direct labor P 3,000
Machine time 60 hours
Sample 2
Inventories
December 1 December 31
Work in process 3,000 units 2,000 units
Direct materials, P2.40 per units
Direct labor, P0.80 per unit
Machine time 48 hours 32 hours
Materials
Sample 2
Total December manufacturing cost was
P18,000 of which P3,000 was direct labor cost.
A total of 600 machine hours were used in the
month. The company uses a predetermined
overhead rate of P100 per machine hour to
assign factory overhead to work in process and
finished goods inventories. Materials purchased
in December were P87,000 and freight-in on
these purchases totaled P1,500.
Sample 2
Compute the following:
1. Materials used in December
2. Work in process at December 31
3. December cost of goods manufactured
4. Finished goods at December 31
5. December cost of goods sold
Sample 3
K Works collects its production cost data by job order
cost accumulation. For Job 9, the following data are
available:
Direct materials Direct labor
9/14 Issued P 600 Week of Sept. 20, 90 hrs. @ P6.20/hr.
9/20 Issued 331 Week of Sept. 26, 70 hrs. @ P7.30/hr.
9/22 Issued 200
Sample 3
Factory overhead is applied at the rate of P80 per
machine hour. Ten machine hours were used on Job 9 on
September 20.
Required:
1. Enter the appropriate information of a job cost sheet.
2. Determine the sales price of the job, assuming that it
was contracted with markup equal to 65% of
production cost.
End
