Job order costing

1. Job Order
Costing

2. Learning Objectives (1 of
3)
• Contrast the job order and process costing
systems and their valuation methods
• Define what the term ‘job’ means
• Explain the purpose of the documents used
in a job order costing system

3. Learning Objectives (2 of
3)
• List the journal entries used to accumulate
costs in a job order costing system
• Identify how technology impacts the
gathering and use of information in job
order costing systems

4. Learning Objectives (3of
3)
• Explain how standard costs are used in a
job order costing system
• Describe how job order costing information
supports management decision making
• Explain how losses are treated in a job
order costing system

5. Job Order or Process
Costing
Job Order
• Small quantities
• Batches of identifiable, tailor-made
products
• User-specific services
• Tracks costs by job

6. Job Order or Process
Costing
 Process
 Large quantities
 Homogeneous
goods
 Tracks costs by
batch of goods by
department
Job Order
• Small quantities
• Batches of
identifiable,
tailor-made
products
• User-specific
services
• Tracks costs by
job

7. Job Order
Costing
• A job is a single unit or group of units
identifiable as being produced to distinct
customer specifications
• A job can be a
– Client
– Engagement
– Project
– Contract

8. Costing Systems
Job order costing Process costing
COLA

9. Product
Costing
• Cost identification
• Cost measurement
• Product cost assignment

10. Methods ofProduct
Costing
• Cost Accumulation System defines
– cost object
– method of assigning costs to production
• Valuation Method specifies
– how product costs will be measured

11. Six Possibilities
Job Order
• Actual
• Normal
• Standard
Process
• Actual
• Normal
• Standard
V
A
L M
U E
A T
T H
I O
O D
N
COSTING SYSTEM

12. 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
The
Difference

14. Job Order Costing
System
• Each job is a cost object
• Costs are accumulated for each job
• A job can consist of one or more units of
output
• There is a subsidiary ledger for each job

15. Job OrderCosting
System
WIP ControlJob 1 Job 2 Job 3
Job 1 + Job 2 + Job 3 = WIP Control
WIP Subsidiary Ledger
= Job 1 100
Job 2 200
Job 3 500
Total 800
100 200 500

16. Material Requisition
Form
• Tracks who is responsible for materials
• Verifies flow of materials from warehouse
to department to job

17. Material Requisition
Form
• Tracks who is responsible for materials
• Verifies flow of materials from warehouse to
department to job
• Journal entry
Work in Process Inventory (direct material)
Manufacturing Overhead (indirect material)
Raw Material Inventory

18. Materials Requisition
Form
Date No. ###
Job No. Department
Authorized by Issued by
Unit of Quantity Quantity UnitItem Part
No. No. Descrip. Measure Required Issued Cost
Total
Cost
Received by Inspected by

19. Job OrderCost
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

20. Job OrderCost
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

21. Job OrderCost
Sheet
Customer
Starting Date
Completion Date
Job No. ###
Job Description
Contract Price
Materials Direct Labor Overhead Applied
Date Ref# Amount Date Ref # Amount Date Ref# Amount
Total Materials
Total Labor Total Cost of Job
Total OH Applied ========

22. Employee Time
Sheet
• Time worked on each job

23. Employee Time
Sheet
• Time worked on each job
• Journal entry
Work in Process Inventory (direct labor)
Manufacturing Overhead (indirect labor)
Salaries and Wages Payable

24. Employee Time
Sheet
 Employee No.
 Department
 Start
Employee Name
For week ending
Type of Work Job No. Time
Stop Total
Time Day Hours
Employee Signature Supervisor’s Signature

25. Manufacturing
Overhead
Overhead Account
Actual Overhead Applied Overhead
• Journal Entry
Work in Process Inventory
Manufacturing Overhead (applied)

26. Completion ofa
Job
• Move job cost sheet from WIP
subsidiary to Finished Goods subsidiary

27. Completion ofa
Job
• Move job cost sheet from WIP
subsidiary to Finished Goods subsidiary
• Journal entry
Finished Goods Inventory
Work in Process Inventory

28. 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

29. Management Use of
Job OrderCosting
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

30. Product and Material
Losses
• Shrinkage
– Evaporation
– Leakage
– Oxidation
• Production errors
– Defects can be economically reworked
– Spoilage cannot be economically reworked

31. Product and Material
Losses
• Normal Loss – expected during production
• Abnormal Loss – exceeds that expected
during production

32. Normal Loss
• Anticipated on all jobs
– Include cost when calculating predetermined
overhead application rate
– Include cost less the estimated disposal value
• Specific to a job
– Applied to the specific job
– Include cost less the estimated disposal value

33. Abnormal
Spoilage
• Period cost – includes cost of abnormal loss
less any disposal value

34. Product and Material Losses
Normal
Loss
Loss for
most jobs
Loss identified
with a
specific job
In overhead
rate
Abnormal
Loss
Period cost
Charge to
specific job
Period cost