Job order costing tracks costs for individual jobs or orders, while process costing tracks costs for an entire production process. There are three valuation methods for measuring product costs: actual costing uses actual costs incurred, normal costing uses standard costs for overhead, and standard costing uses predetermined standard costs for materials, labor, and overhead. The job order cost sheet accumulates all costs for an individual job, including direct materials and labor costs from requisition forms and time sheets, applied overhead, and budgeted versus actual cost comparisons.

1. Chapter 5
Job Order Costing
Cost Accounting
Traditions and Innovations
Barfield, Raiborn, Kinney

2. 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

3. 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

4. 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

5. 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

6. 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

7. Costing Systems
Job order costing Process costing
COLA

8. Which Costing System?
Tax
Return

9. Job Order Costing System
• Each job is a cost object
• Accumulate costs for each job
• Use subsidiary ledger
WIP Control
Job 2
Job 1 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

10. 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

11. 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 _____________

12. 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

13. Job Order Cost Sheet
Customer ____________ Job No. ###
Starting Date _________ Job Description ____________
Completion Date ______ Contract Price _____________
Materials
Date Ref# Amount
Direct Labor
Date Ref # Amount
Overhead Applied
Date Ref# Amount
Total Materials _________
Total Labor _________ Total Cost of Job
Total OH Applied _________ ========

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

15. 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

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

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

18. Sale
• Journal entry
Accounts Receivable
Sale
Cost of Goods Sold
Finished Goods Inventory

19. Job Order Costing and Technology
• Automate data collection and data entry
• Accounting software includes Job Costing
modules
• Share information using intranet

20. Journal Entries
Materials WIP-Job 1 FG
CGS
WIP-Job 2
Accts Pay Overhead
W & Sal Pay
WIP consists of job cost sheets

21. Purchase Materials on Account (a)
Materials WIP-Job 1 FG
CGS
WIP-Job 2
Accts Pay Overhead
W & Sal Pay
a
a

22. Use Materials Requisition to
Request Materials for Jobs (b)
Materials WIP-Job 1 FG
CGS
WIP-Job 2
Accts Pay Overhead
W & Sal Pay
a
a
b
b
b
Direct materials to WIP
Indirect materials to Overhead
b

23. Record Labor from Employee Time
Sheets (c)
Materials WIP-Job 1 FG
CGS
WIP-Job 2
Accts Pay Overhead
W & Sal Pay
a
a
b
b
b
Direct labor to WIP
Indirect labor to Overhead
b
c
c
c
c

24. Apply Overhead (d)
Materials WIP-Job 1 FG
CGS
WIP-Job 2
Accts Pay Overhead
W & Sal Pay
a
a
b
b
b
b c
c
c
c
d
d
d

25. Complete Job 1 (e)
Materials WIP-Job 1 FG
CGS
WIP-Job 2
Accts Pay Overhead
W & Sal Pay
a
a
b
b
b
b c
c
c
c
d
d
d
e e

26. Sell Job (f,g)
Materials WIP-Job 1 FG
CGS
WIP-Job 2
Accts Pay Overhead
W & Sal Pay
a
a
b
b
b
b c
c
c
c
d
d
d
e e
Accts Rec Sales
f
f
g
g

27. 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

28. 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

29. 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?