The document discusses job order costing and its key aspects. It defines job order costing as work done based on a customer's special requirements using direct materials, direct labor, and production overheads. It outlines the steps in job order costing which include estimating costs, issuing a production order, tracking costs on a job cost sheet, and calculating the total job cost by adding direct costs and allocated overheads. Source documents for collecting costs include material requisition forms, time records, and invoices. Overheads are allocated using predetermined overhead rates.

1. Chapter 5 :
Costing Methods
CLO2
Apply properly the element
of costs in ascertainment of
cost and preparing the
budget in manufacturing and
servicing environment
CLO3
Discuss precisely various
types of budgeting for the
management planning

2. 5.1 Job & Batch Costing
5.1.1 Define Job &
Batch Costing
5.1.2. Explain
features & steps
involved for both
method
5.1.3. Identify source
documents and
determine unit cost
& pricing
Costing Methods
5.2 Service Costing
5.2.1 Define
service costing
5.2.2. Explain
features
5.2.3. Describe unit
cost associated
under the method

3. Costing refers to the techniques and processes of determining
cost of a product manufactured or service rendered. Different
methods are applied in to ascertain cost depending upon the
nature of the product, production method and specific business
conditions.

4. Product
Costing
Methods
Specific Order Costing
Job Costing
Specific Order Costing
Batch Costing
Specific Order Costing
Contract Costing
Continuous Costing
Process Costing
Continuous Costing
Service Costing

5. Job Costing
Work is done based on the
customer’s special requirement. Work
consist of direct materials, direct
labour and production overheads.
Purpose of Job Costing :
-Ascertain cost for each completed job
-Determine the profit or loss
-Provide a valuation for uncompleted
job
Companies that produce individual
products or batches of product. Like
construction companies, printing
companies, furniture manufacturer.

6. Features of Job Costing
DL and DM are identified and charged to
specific jobs. Indirect manufacturing cost
are apportioned among the jobs.
Unit cost = Total manufacturing cost/
the number of goods units
produced
Work is based on customer’s
specification. Production is for customer
order, not for maintaining stock.
Also known by different names :
Specific Order/ Production Order
Job cost sheets can be used to
control efficiency and estimate
future work
Each job cost sheets have a number of
the job.

7. Features of Job Costing
Products manufactured are
distinguishable. The cost is for the job &
not related to the unit of production
WIP depends on the number of
incomplete jobs in hand at the end
of the period.
The valuation of WIP is difficult, each
job has to be dealt as a separate unit
Separate job or production numbers
are allotted to each job.
A separate cost record is maintained
for each job from time the production
begins until it is completed.
The job is usually carried out in
the factory premises.

8. Steps Involved in Job Order Costing
1. The potential customer
makes a request for a
job to be done
3. The production planning department decides
on the series of operations and assign the job to
the relevant machines or departments.
Bills of materials are produced estimating the
amount of materials required. The production
order, known as work or job order, issued to the
workshop. With the production order, the cost is
calculated. All relevant information includes :
- Detailed requirements for the job,
product or service
- Quantity to be produced
- Period of the job
- Specification of materials required
- Details of other processes engaged in
carrying out the job.
2. The specific details of the
job order are discussed and
agreed upon. The production
planning department prepares
an appropriate design for the
job
4. The estimated job is
calculated based on the
expected usage of materials,
labour, overhead costs, and
any other specific cost.
5. The job starts once the
customer agrees to the quoted
selling price.
6. All relevant costs related to
the job are included in a
specific job cost card bearing
the job order number.

9. A job cost card/ sheet for each job is generated
with details of all costs relating to the particular
job. Each job cost card will be specific for each
customer.
Job cost sheet is a document used to
record manufacturing costs and is prepared
by companies that use job-order costing
system to compute and allocate costs to
products and services. It contains a job
number, product name, starting date,
completing date, number of units completed
etc.
Source document used in Job Costing

10. Ascertaining a job
cost - job cost is
computed by adding all
costs pertaining
completion of a job.
3
1
2
4
5
Production
stage
Direct costs
Overhead
costs using
overhead
absorption
rates
Total 1 & 2 =
Production/
Factory cost
Total Cost =
Production Cost +
Other Non-
production costs
Sales &
Delivery stage
Other non-
production
overheads
Profit/ Loss =
Selling price -
Total cost

11. Accounting for Job Order Production
Direct material costs
Raw material needed for the production process
are transferred from warehouse to the production
department.
A material requisition form completed by the
production department supervisor is sent to the
warehouse supervisor. The MRN form authorize
the the release of materials.
The cost accounting department receives a copy
which is used to transfer the cost of materials to
the job cost card. It also used to maintain control
on the material inventory.

12. Accounting for Job Order Production
Direct labour cost
A time record is a source document that records
the time an employee spends on a job. Information
in the time record includes the employee’s name,
the job number, wage rate, and the hours worked
on each job.
These time records are sent to the cost accounting
department where the information is used to assign
the direct labour costs to individual jobs. These
records are used only for direct labour.
Direct expenses - information taken from relevant
invoices.

13. Accounting for Job Order Production
Production overheads
Assigned to jobs by absorbing the overheads into the job using appropriate predetermined
absorption rates.
Predetermined overhead absorption rate = Budgeted production overheads cost
Budgeted amount of cost driver
Company Alpha is using a predetermined overheads absorption rate based on machine hours. The
total budgeted overhead is RM420,000 and the total budgeted machine hours are 70,000. The
company is involved with the production of Job A and Job A requires 200 machine hours.
RM420,000 machine hours = RM6 per machine hour
70,000
The overhead absorbed into Job A will be : 200 machine hours x RM6/machine hour = RM1,200

14. Accounting for Job Order Production
Production overheads
If the actual overhead costs for Job A is RM2,000, then the under-absorbed overhead would
be RM2,000 - RM1,200 = RM800. This implies that the cost of goods sold was undercharged
by RM800. The adjustment would be to add back the RM800 under absorbed overheads into
the cost of goods sold. An alternative would be to adjust the under-absorbed overheads in the
statement of profit and loss by debiting the account.
If the actual overhead costs is RM1,000, then the over-absorbed overheads would amount to
RM1,200 - RM1,000 = RM200. This implies that the costs of goods sold had been
overcharged by RM200 and therefore the adjustment should be to deduct the RM200 from
the costs of goods sold. An alternative would be to adjust the over-absorbed overheads in the
statement of profit and loss by crediting the account.

15. Accounting for Job Order Production
Non-manufacturing overheads
Are considered as period costs and they are not charged to the work-in-
progress account. These overheads will be debited to the non-
manufacturing account and the double entry would be in the expense
payables account.
Where the non-manufacturing costs are a direct cost for the job, such cost
are allocated to the job using an appropriate cost driver that correlates
closely to the non-manufacturing costs. Generally the non-manufacturing
overheads are allocated using a percentage of the total manufacturing cost.

16. Accounting for Job Order Production
Rectification costs
Rectification cost incurred when there is a defect in the final product. It can
be deal by the following ways : charged as direct cost to the job if the
rectification is specific to the job and can be traced directly to the product. It
can be charged as production overheads and absorbed into the job using
predetermined overhead rates, if the rectification is a normal occurrence and
is carried out generally.
Work-In-Progress
Sum of costs incurred on incomplete jobs.
Finished goods
Costs of Goods Sold

17. Ascertaining a Job Cost
The job cost card sheet will record the direct materials, direct labour and
production overhead costs when the production starts. When a job is
finished, the cost sheet is then marked completed and the production
department will prepare the finished goods notes that will be sent to the cost
office. The job cost account will be closed and transferred to the cost of
sales account. The job must include the total prime costs, absorbed
production overheads as well as administration, selling and distribution
overheads, and the profit or loss on the job. If the job is not completed, the
total costs incurred in the job order will become work-in-progress.

18. Salam Manufacturing Co Ltd produces special purpose grinding machines. A
customer has asked Salam Manufacturing Co Ltd to quote a price for making the
machine. The following estimates were available.
Direct material costs
RM500
Direct wages :
Machining 300 hours at RM0.50
Assembling 200 hours at RM0.25
Overhead is absorbed at RM0.20 per direct labour hour
Selling and distribution overhead is 25% of production cost.
Profit is 25% of the total cost.
Prepare the job cost card indicating the price to be quoted.
1. Job Cost Card
DETERMINE PRODUCTION PRICE

20. Exercise
Malie’s Berhad uses a job order costing systems in its production process. Production overhead is
applied based on direct labour hours incurred. The following information concerns a customer
order for the job number 1345H.
Direct materials used
Requisition Number 1333 RM880
Requisition Number 1334 RM906
Requsition Number 1335 RM248
Direct Labour
Machining Department 8 hours at RM9 per hour
Assembly Department 5 hours at RM10 per hour
Inspection Department 7 hours at RM12 per hour
In addition, production overhead cost is applied to the job at the rate of RM11 per direct labour
hour. The selling and distribution overhead is RM180. Profit is estimated at 25% of the total cost.
Required : Prepare a job cost sheet for the job number 1345H.

21. Solution

22. Exercise :
Andrew Manufacturing Co Ltd produces grinding machines. A customer has asked Andrew Manufacturing
Co Ltd to quote a price for making the machine. The following estimates were available :
Direct material cost RM500
Direct wages :
Machining 300 hours at RM0.50
Assembling 200 hours at RM0.25
Overhead is absorbed at RM0.20 per direct labour hour
Selling and distribution overhead is 25% of production cost
Profit is 25% of total cost
Prepare the job cost card indicating to be quoted.

23. Answer :

24. 2. Cost Ledger Account

25. Solution