Job Order

Costing
INCOSAC
 Job Order Costing

• Used in manufacturing activities characterized by the

production of certain items to the unique specifications of the
customer or by the performance of some specified activity
under a negotiated contract
• Examples: clothing factories, construction companies, auto repair shop,
commercial printers, restaurants, hospitals
 Job Order Costing
Input Process Output
 Job Order System
• Jobs are accumulated per job order and involves the ff. forms:

(1) Job Cost Sheet

• Where costs incurred for every job order or production
order are compiled in

Goods are ordered

by a customer
Suits the needs of the
Job Order /
custom-made item or the
Production Order stipulations of a special contract
Goods are needed
for stock

Signal to start
production/job to be done
Straight to
WIP
 Job Order System

(2) Stores Requisition

• Where direct materials issued from the storeroom are
shown
Direct
Material
section of the
Job Cost Sheet

*Indirect materials are classified under Factory

Overhead
Indirect Materials

Indirect Materials
 Job Order System

(3) Daily Time Report

• Where details of the laborers’ work are shown

Direct Labor
section of the
Job Cost Sheet

*Indirect labor is classified under Factory Overhead

Indirect Materials
Indirect Labor

Indirect Materials
Indirect Labor
 Applying Factory Overhead
to Products
1. Select a cost application base that serves as a common denominator for all products.
- direct labor hours
- direct labor costs
- machine hours

2. Prepare a factory overhead budget for the planning period.

- budgeted total overhead
- budgeted total volume of the application base

3. Compute the budgeted factory overhead rate:

budgeted total overhead ÷ budgeted total volume of the application base

4. Obtain the actual application base data.

5. Apply the overhead to the jobs:

budgeted rate × actual application base data

6. Account any differences between the amount of overhead actually incurred and overhead
applied to products.
 Proration
• the spreading of underapplied or overapplied overhead
among various inventory and cost of goods sold

Two Methods:
(1) Prorate to CGS
(2) Prorate to WIP, CGS and FG

FOH Control – FOH Applied

(actual) (charge)
lacking
chargescharges
excess
Example of transactions
Raw materials
inventory

Accrued Wages
Payable
Example of transactions
Utilities expenses
Depreciation
expenses Insurance
expenses

FG inventory

Direct Material Direct Labor FOH

Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case A: FOH Applied P550,000

FOH Control P600,000

P600,000 – P550,000 = (+) P50,000

Underapplied overhead
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case A: FOH Applied P550,000  Underapplied overhead

FOH Control P600,000
(1) Prorate to CGS:
Adjusting entry:
Debit Credit
CGS P50,000
FOH Applied P50,000
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case A: FOH Applied P550,000  Underapplied overhead

FOH Control P600,000
(1) Prorate to CGS:
Expense account: FOH
Dr Cr
FOH P600,000 P550,000 FOH Applied
Control 50,000
600,000
=
*close temporary
account
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case A: FOH Applied P550,000  Underapplied overhead

FOH Control P600,000
(2) Prorate to WIP, CGS, FG: FOH Prorated
WIP = 125,000 125/1250 (50k) 5,000
CGS = 625,000 625/1250 (50k) 25,000
FG = 500,000 500/1250 (50k) 20,000
1,250,000 50,000
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case A: FOH Applied P550,000  Underapplied overhead

FOH Control P600,000
(2) Prorate to WIP, CGS, FG: Adjusting entry
Debit Credit
WIP 5,000
CGS 25,000
FG 20,000
FOH Applied P50,000
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case A: FOH Applied P550,000  Underapplied overhead

FOH Control P600,000
(2) Prorate to WIP, CGS, FG:
WIP CGS FG
Dr Cr Dr Cr Dr Cr
P125,000 P625,000 P500,000
5,000 25,000 20,000
130,000 650,000 520,000
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case B: FOH Applied P640,000

FOH Control P600,000

P600,000 – P640,000 = (–) P40,000

Overapplied overhead
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case B: FOH Applied P640,000

FOH Control P600,000  Overapplied overhead

(1) Prorate to CGS:

FOH
Adjusting entry: Dr Cr
Debit Credit P600,000 P640,000
FOH Control P40,000 40,000
CGS P40,000 640,000
=
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case B: FOH Applied P640,000

FOH Control P600,000  Overapplied overhead

(2) Prorate to WIP, CGS, FG: FOH Prorated

WIP = 125,000 125/1250 (40k) 4,000
CGS = 625,000 625/1250 (40k) 20,000
FG = 500,000 500/1250 (40k) 16,000
1,250,000 40,000
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case B: FOH Applied P640,000

FOH Control P600,000  Overapplied overhead

(2) Prorate to WIP, CGS, FG: Adjusting entry

Debit Credit
FOH Control 40,000
WIP 4,000
CGS 20,000
FG 16,000
Illustrative Problem # 1:
Given the following ending balances:
Work-In-Process: P125,000
Cost of Goods Sold: P625,000
Finished Goods: P500,000

Case B: FOH Applied P640,000

FOH Control P600,000  Overapplied overhead

(2) Prorate to WIP, CGS, FG:

WIP CGS FG
Dr Cr Dr Cr Dr Cr
P125,000 4,000 P625,000 20,000 P500,000 16,000
121,000 605,000 484,000
to balance to balance to balance
Problem Set # 1:
The University of Chicago Press is wholly owned by the university. A job order
system is used for printing. The bulk of work is done for other university
departments, which pay as though the Press were an outside business enterprise.
The Press also publishes and maintains a stock of books for general sale.

(Given 19_2 data shown in the following slide)

*Required:

(a) Prepare general journal entries to summarize 19_2 transactions. As your final
entry, dispose of the year-end overapplied or underapplied factory overhead as
direct adjustment to cost of goods sold.

(b) Show posted T-accounts for all inventories, cost of goods sold, factory
department overhead control, and factory overhead applied.
Problem Set # 1:
The following data pertain to 19_2 (in thousands): (a) Journal Entries: Dr Cr
1 Direct materials and supplies purchased on account $800 1
Mat’ls Control $800
A/P $800
2 Direct materials issued to the production departments 710 2
WIP 710
Mat’ls Control 710
3 Supplies issued to various production departments 100 3
FOH Control 100
Mat’ls Control 100
4 Labor used directly in production 1,300 4
WIP 1300
Payroll Liability 1300
5 Indirect labor incurred by various departments 900 5
FOH Control 900
Payroll Liability 900
6 Depreciation, buildings and factory equipment 400 6
FOH Control 400
Acc’d Dep’n 400
Misc. factory overhead incurred by various FOH Control 550
7 550 7
departments (repairs, photocopying, utilities, etc.) Cash or A/P 500

8 Factory overhead applied at 160% of direct labor cost ? 8

WIP 2080
FOH Applied 2080
160% ($1300) = $2080
FG Control
FOH 4120
FOH Control – FOH Applied
9 Cost of goods manufactured 4,120 9
WIP 4120
Dr Cr = 1950 – 2080
Sales 8,000 Cash or A/R
10 10
$ 100 $Sales
2080 8000
= – 130 8000
900
400 CGS 4020
11 Cost of goods sold 4,020 11
550 ( overapplied)
FG Control 4020
Inventories, December 31, 19_1: 1950 Adjusting Entry:
Materials Control 100 12 FOH Control
+ 130 130
Work-in-process control 60 CGS 130
Finished goods control 500
2080 =
Problem Set # 1:
Dr Cr Inventories, December 31, 19_1:
Materials Control 100
Mat’ls Control $800
1
A/P $800 Work-in-process control 60
Finished goods control 500
2
WIP 710
Mat’ls Control 710 (b) T-Accounts:
FOH Control 100 FOH CGS
3
Mat’ls Control 100
Dr Cr Dr Cr
WIP 1300
4
Payroll Liability 1300 $ 100 $ 2080 4020 130
900
FOH Control 900
5 400 3890
Payroll Liability 900
550
FOH Control 400
6
Acc’d Dep’n 400 1950
+ 130
7
FOH Control 550
Cash or A/P 500 2080
=
8
WIP 2080
FOH Applied 2080 Mat’ls Control WIP FG Control
FG Control 4120
9 Dr Cr Dr Cr Dr Cr
WIP 4120
Cash or A/R 100
Beg: 710 Beg:60 4120 Beg: 500 4020
10 8000 8000 800 100 710 4120
Sales 30 600
CGS 4020 900 810 1300 to balance to balance
4620
11
FG Control 4020 2080
90
12
FOH Control 130 to balance 4150
CGS 130
Problem Set # 3:
The Solomon Company uses a budgeted overhead rate for applying factory
overhead to job orders on a machine hour basis for the machining department and
on a direct labor cost basis for the finishing department. The company budgeted
the following for 19_1:
Machining Finishing
Factory overhead $10,000,000 $8,000,000
Machine hours 200,000 33,000
Direct labor hours 30,000 160,000 budget
Required: Direct labor cost $900,000 $4,000,000
(a) What is the budgeted overhead rate that should be used in the machining
department? In the finishing department?
Budgeted factory overhead rate = budgeted total overhead ÷ budgeted total volume of the application base
Machining Finishing
(machine hrs) (direct labor cost)
$10,000,000 $8,000,000
= $ 50 / machine hr = $ 2 / direct labor cost
200,000 hrs $4,000,000
Problem Set # 3:
(b) During the month of January, the cost record for job order No. 431 shows the
following: Machining Finishing
Direct Materials requisitioned $14,000 $3,000
Direct labor cost $600 $1,250
Direct labor hours 30 50
actual
Machine hours 130 10
What is the total overhead applied to Job 431?
Machining Budgeted Overhead Rate: $ 50 / machine hr
Machining Applied Overhead Cost = $ 50/hr (130 machine hrs) = $ 6500
Finishing Budgeted Overhead Rate: $ 2 / direct labor cost
Finishing Applied Overhead Cost = $ 2 ($1,250) = $ 2500
$9,000
(c) Assuming that Job 431 consisted of 200 units of product, what is the unit cost of
Job 431? Machining Finishing Total
Direct Material $14,000 $3,000 $17,000
Direct Labor $600 $1,250 $1,850
FOH $6,500 $2,500 $9,000
Total Cost $27,850 / 200 units = $139.25 / unit
Problem Set # 3:
(d) Balances at the end of 19_1:
Machining Finishing
Factory overhead incurred $11,200,000 $7,900,000 FOH
Direct labor cost $950,000 $4,100,000 Control
Machine hours 220,000 32,000
Compute for the underapplied or overapplied overhead for each department and for the
factory as a whole.
FOH Control – FOH Applied
Machining Budgeted Overhead Rate: $ 50 / machine hr
Machining FOH Applied = $ 50/hr (220,000 machine hrs) = $ 11,000,000
Machining: $11,200,000 – $11,000,000 = + $200,000 (Underapplied)
Total Factory:
Finishing Budgeted Overhead Rate: $ 2 / direct labor cost – $100,000
Finishing FOH Applied = $ 2 ($4,100,000) = $ 8,200,000 (Overapplied)
Finishing: $7,900,000 – $8,200,000 = – $300,000 (Overapplied)
Problem Set # 6:
The Greco Globe Garments uses the job order costing system for inventory valuation and
product pricing. The beginning inventory schedule as of December 31, 1991 is as follows
(in thousands of pesos):
Direct materials P200
Supplies 125 separate accounts

The Finished Goods inventory consisted of two jobs: IR 22 and IR 23 with job cost
sheets shown below:
Job No. Item Direct Labor Direct Materials Factory Overhead
IR 22 Calypso P20,000 P40,000 P15,000
IR 23 Vulcan 3,000 14,750 2,250
The Work-In-Process inventory consisted of three jobs with current job cost sheets
shown below:
Job No. Item Direct Labor Direct Materials Factory Overhead
IR 24 Hermes P25,000 P40,250 P18,750
IR 25 Apollo 5,000 20,250 3,750
IR 26 Zeus 55,750 39,437 41,813
Jobs IR 27 (June) and IR 28 (Ceres) were started during 1992. The breakdown of direct
materials requisitioned by and direct labor used in the production department is as
follows (in P000): Job No. Direct Labor Direct Materials
IR 24 20 5
IR 25 155 105
IR 26 125 25
IR 27 125 100
IR 28 175 165
Total 600 400
Problem Set # 6:
The following transactions pertain to 1992 (in P000): (a) Journal Entries: Dr Cr
Mat’ls Control P500
Direct materials purchased on account, terms 5/15, a
A/P P500
a 500
n/30:
b
Supplies 75
b Supplies purchased in cash: 75 Cash 75

c
WIP 400
Direct materials requisitioned by the production Mat’ls Control 400
c 400
department: Total WIP IR24 + IR25 + IR26 + IR27 + IR28 FOH Control 100
d
Supplies 100
d Supplies used in various production departments: 100
WIP 600
Labor directly used in production
e Payroll Liability 150
e 600 Cash 450
(25% still unpaid as of the end of 1992):
Total WIP IR24 + IR25 + IR26 + IR27 + IR28 FOH Control 200
f
f Indirect labor incurred by production: 200 Payroll Liability 200

g
Selling/Gen/Admin Exp 450
g Indirect labor incurred by office: 450 Cash or Payroll Liab 450
(OPEX) FOH Control 50
h
h Depreciation, factory and equipment: 50 Acc’d Depn 50

i
FOH Control 150
A/P 150
i Miscellaneous factory overhead (utilities, repairs, etc.): 150
j
WIP 450
Factory overhead applied is based on FOH Applied 450
j ?
a rate of P0.75 per direct labor cost P 0.75 (P600) = 450 FG Control 848
k
Goods manufactured and transferred to finished WIP 848
k ?
goods inventory: IR 24, 25, 27 Total FG IR24 + IR25 + IR27 = 848 CGS 799
l FG Control 799
L Goods sold: IR 22, 25, 27 at a 20% gross profit margin. ? Cash or A/R 998.75
FGCGS Sales – CGS = GM Sales = CGS/(100%-20%) Sales 998.75
Problem Set # 6: Dr Cr
Mat’ls Control P500
(b) Ending Balances of Inventories (DM, WIP, FG):
a
A/P P500 Mat’ls Control WIP FG Control

b
Supplies 75 Dr Cr Dr Cr Dr Cr
Cash 75
200
Beg: 400 Beg:250 848 Beg: 95 799
WIP 400 500 400 848
c 300 852 144
Mat’ls Control 400
to balance 600 to balance to balance
FOH Control 100 700 943
450
d
Supplies 100 875.73 4.01 148.01
1,700 adjusted adjusted
WIP 600 to balance 947.01 to balance
e Payroll Liability 150 23.73
Cash 450
1,723.73 FOH Prorated
FOH Control 200
f
Payroll Liability 200 (c) Prorate to CGS, CGS = 799 799/1795 (50k) 22.26
Selling/Gen/Admin Exp 450
WIP and FG: WIP = 852 852/1795 (50k) 23.73
g
Cash or Payroll Liab 450 FG = 144 144/1795 (50k) 4.01
(d) Income Statement for 1992:
FOH Control 50 FOH 1,795 50
h
Acc’d Depn
Greco Globe
50
Garments
Dr Cr Adjusting Entry: Dr Cr
Income Statement
FOH Control 150 CGS 22.26
i For the Year Ended 1992 (in P000)
100 450
A/P 150 WIP 23.73
SALES 450 200998.75 50 m
FG 4.01
j
WIP 50 adjusting entry
FOHless CGS
Applied 450 (821.26 ) FOH Applied 50
150 CGS
FG Control GROSS MARGIN
848 177.49
k
WIPless 848 500 500 Dr Cr
OPEX =
CGS 799
Selling/Gen/Admin Exp. FOH (450.00
Control – FOH
) Applied 799
FG Control 799 = 500 – 450
l
22.26
Cash or A/R NET INCOME
998.75 = + (272.51)
50 (Underapplied)
Sales 998.75 821.26