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Chapter 5
Job Order Costing
Cost AccountingTraditions and Innovations
Barfield, Raiborn, Kinney
Learning Objectives (1 of 2)
• Explain the difference between job order and process costing systems
• Define actual, normal, and standard costing valuation methods for job order and process costing systems
• Explain when to use a job order costing system
• Define what the term ‘job’ means
Learning Objectives (2 of 2)
• Describe the documents and prepare the journal entries in a job order costing system
• Identify how technology is used in job order costing systems
• Explain how standard costs are used in a job order costing system
• Describe decisions that are made based on job order costing information
Methods of Product Costing
• Product Costing System defines
– cost object – method of assigning costs to production
• Valuation Method specifies
– how product costs will be measured
Six Possibilities
Job Order• Actual• Normal• Standard
Process • Actual• Normal• Standard
VAL MU EA TT HI OO DN
COSTING SYSTEM
Valuation Methods
• Actual– Actual direct material
– Actual direct labor
– Actual overhead
• Normal– Actual direct material
– Actual direct labor
– Predetermined overhead
• Standard– Standard direct
material
– Standard direct labor
– Standard overhead
Costing Systems
Job order costing Process costing
COLA
Which Costing System?
Tax Return
Job Order Costing System• Each job is a cost object
• Accumulate costs for each job
• Use subsidiary ledger
WIP ControlJob 2Job 1 Job 3
Job 1 + Job 2 + Job 3 = WIP Control
WIP Subsidiary Ledger
= Job 1 100Job 2 200Job 3 500Total 800
100 200 500
Material Requisition Form
• Tracks who is responsible for materials
• Verifies flow of materials from warehouse to department to job
• Journal entryWork in Process Inventory (direct material)
Manufacturing Overhead (indirect material)
Raw Material Inventory
Materials Requisition Form
Date ___________________ No. ###
Job No. _________________
Authorized by ___________
Department _______________Issued by _________________Inspected by _______________
Item Part Unit of Quantity Quantity Unit Total
No. No. Descrip. Measure Required Issued Cost Cost
Received by _____________
Job Order Cost Sheet
• All financial information about a job– direct material (from material requisition)– direct labor (from time sheets or labor tickets)– applied overhead– budgeted cost information
• When job is complete, use job order cost sheet to analyze actual costs to budgeted costs
Job Order Cost Sheet
Customer ____________ Job No. ###
Starting Date _________ Job Description ____________
Completion Date ______ Contract Price _____________ MaterialsDate Ref# Amount
Direct LaborDate Ref # Amount
Overhead AppliedDate Ref# Amount
Total Materials _________
Total Labor _________ Total Cost of Job
Total OH Applied _________ ========
Employee Time Sheet
• Time worked on each job
• Journal entryWork in Process Inventory (direct labor)
Overhead (indirect labor)
Salaries and Wages Payable
Employee Time Sheet
Employee Name _______________
Employee No. _______________
Department _______________
For week ending
_______
Start Stop Total Type of Work Job No. Time Time Day Hours
Employee Signature Supervisor’s Signature
Overhead
Overhead Account
Actual Overhead Applied Overhead
• Journal EntryWork in Process Inventory
Overhead (applied)
Completion of a Job
• Move job cost sheet from WIP subsidiary to Finished Goods subsidiary
• Journal entryFinished Goods Inventory
Work in Process Inventory
Sale
• Journal entryAccounts Receivable
Sale
Cost of Goods Sold
Finished Goods Inventory
Job Order Costing and Technology
• Automate data collection and data entry
• Accounting software includes Job Costing modules
• Share information using intranet
Journal Entries
Materials WIP-Job 1 FG
CGSWIP-Job 2Accts Pay Overhead
W & Sal Pay
WIP consists of job cost sheets
Purchase Materials on Account (a)
Materials WIP-Job 1 FG
CGSWIP-Job 2Accts Pay Overhead
W & Sal Pay
a
a
Use Materials Requisition to Request Materials for Jobs (b)
Materials WIP-Job 1 FG
CGSWIP-Job 2Accts Pay Overhead
W & Sal Pay
a
a
b
bb
Direct materials to WIPIndirect materials to Overhead
b
Record Labor from Employee Time Sheets (c)
Materials WIP-Job 1 FG
CGSWIP-Job 2Accts Pay Overhead
W & Sal Pay
a
a
b
bb
Direct labor to WIPIndirect labor to Overhead
bc
cc
c
Apply Overhead (d)
Materials WIP-Job 1 FG
CGSWIP-Job 2Accts Pay Overhead
W & Sal Pay
a
a
b
bb
b c
cc
c
d d
d
Complete Job 1 (e)
Materials WIP-Job 1 FG
CGSWIP-Job 2Accts Pay Overhead
W & Sal Pay
a
a
b
bb
b c
cc
c
d d
d
e e
Sell Job (f,g)
Materials WIP-Job 1 FG
CGSWIP-Job 2Accts Pay Overhead
W & Sal Pay
a
a
b
bb
b c
cc
c
d d
d
e e
Accts Rec Sales
f
f
gg
Standard Cost System
• Actual cost
• Normal cost
• Standard cost– Predetermined norms (or standards) for
materials, labor, and overhead– Compare actual costs to standard costs -
difference is a variance
Management Use of Job Order Costing Systems
• Estimate future job costs
• Establish realistic bids and selling prices
• Develop budgets and standards
• Compare actual costs to estimated costs
• Determine which jobs are profitable
• Manage inventory
Questions
• What is the difference between job order and process costing systems?
• What is meant by actual, normal, and standard costing valuation methods?
• How is the job order cost sheet used?
