Cost Accounting
Foundations and Evolutions
Kinney, Prather, Raiborn
Chapter 4
Job Order Costing
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
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
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
Job Order or Process Costing
•
•
•
•
Job Order
Small quantities
Batches of
identifiable,
tailor-made
products
User-specific
services
Tracks costs by
job
Process
• Large quantities
• Homogeneous
goods
• Tracks costs by
batch of goods by
department
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
Methods of Product Costing
• Cost Accumulation System defines
– cost object
– method of assigning costs to production
• Valuation Method specifies
– how product costs will be measured
Six Possibilities
V
A
L
U
A
T
I
O
N
COSTING SYSTEM
M
E
T
H
O
D
Job Order
Process
• Actual
• Normal
• Standard
• Actual
• Normal
• Standard
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
Job Order Costing System
WIP Subsidiary Ledger
Job 1
Job 2
Job 3
100
200
500
Job 1 + Job 2 + Job 3
=
=
WIP Control
Job 1
Job 2
Job 3
Total
100
200
500
800
WIP Control
Material Requisition Form
• Tracks who is responsible for materials
• Verifies flow of materials from warehouse
to department to job
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
Employee Time Sheet
• Time worked on each job
Job Order Costing and Technology
• Automate data collection and data entry
• Accounting software includes job costing
modules
• Share information using intranet
Intranet
Restricted network for sharing information
and delivering data from corporate
databases to local-area network (LAN)
desktops
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
Product and Material Losses
• Shrinkage
– Evaporation
– Leakage
– Oxidation
• Production errors
– Defects can be economically reworked
– Spoilage cannot be economically reworked
Product and Material Losses
• Normal Loss – expected during production
• Abnormal Loss – exceeds that expected
during production
Product and Material Losses
Normal
Loss
Abnormal
Loss
Loss for
most jobs
In overhead
rate
Period cost
Loss identified
with a
specific job
Charge to
specific job
Period cost
Questions
• What is the difference between job order
and process costing systems?
• How do actual, normal, and standard
costing valuation methods differ?
• How is the job order cost sheet used?