Chapter 5:
Job Order Costing
Cost Accounting:
Foundations and Evolutions, 8e
Kinney ● Raiborn
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Learning Objectives
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How do job order and process costing systems, as well as
their related valuation methods, differ?
What are the fundamental characteristics of a job order
costing system?
What are the primary documents supporting a job order
costing system and what purposes are served by each of
them?
How are costs accumulated in a job order costing system?
How are standard costs used in a job order costing
system?
How does information from a job order costing support
management decision making?
How are losses treated in a job order costing system?
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Job Order or Process Costing
Job Order
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Small quantities
Batches of identifiable,
tailor-made products
User-specific services
Tracks costs by job
Process
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Large quantities
Homogeneous goods
Tracks costs by batch of
goods by department
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Job Order Costing
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A job is a single unit or group of units
identifiable as being produced to distinct
customer specifications
A job can be a
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Client
Engagement
Project
Contract
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Product Costing
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Cost identification
Cost measurement
Product cost assignment
Methods of product costing:
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Cost Accumulation System defines
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Cost object
Method of assigning costs to production
Valuation Method specifies
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How product costs will be measured
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Six Possibilities
V
A
L M
U E
A T
T H
I O
O D
N
COST ACCUMULATION
SYSTEM
Job Order
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Actual
Normal
Standard
Process
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Actual
Normal
Standard
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Valuation Methods
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Actual
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Actual direct material
Actual direct labor
Actual overhead
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Standard
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Standard direct material
Standard direct labor
Standard overhead
Normal
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Actual direct material
Actual direct labor
Predetermined overhead
The
Difference
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Job Order Costing System
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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
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Material Requisition Form
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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
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Materials Requisition Form
Date ___________________
No. 341
Job No. _________________ Department _______________
Authorized by ___________ Issued by _________________
Received by _____________ Inspected by _______________
Item Part
Unit of Quantity Quantity Unit Total
No. No. Descrip. Measure Required Issued Cost Cost
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Job Order Cost Sheet
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All financial information about a job
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Direct material (from material requisitions)
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 compared with
budgeted costs
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Job Order Cost Sheet
Customer ____________
Job No. 315
Starting Date _________ Job Description ____________
Completion Date ______ 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 _________
========
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Employee Time Sheet
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Time worked on each job
Journal entry
Work in Process Inventory (direct labor)
Manufacturing Overhead (indirect labor)
Salaries and Wages Payable
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Employee Time Sheet
Employee Name _______________
Employee No. _______________
Department
_______________
Type of Work
Job No.
Employee Signature
Start
Time
For week ending
_______
Stop
Time
Day
Total
Hours
Supervisor’s Signature
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Manufacturing Overhead
Overhead Account
Actual Overhead
Applied Overhead
 Journal Entry
Work in Process Inventory
Manufacturing Overhead (applied)
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Completion of a Job
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Move job cost sheet from WIP subsidiary to
Finished Goods subsidiary
Journal entry
Finished Goods Inventory
Work in Process Inventory
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sale
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Journal entry
Accounts Receivable
Sale
Cost of Goods Sold
Finished Goods Inventory
Matches revenues and
expenses on the income
statement
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Job Order Costing and Technology
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Automate data collection and data entry
Accounting software includes job
costing modules
Share information using intranet
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Intranet: Restricted network for sharing
information and delivering data from
corporate databases to local-area network
(LAN) desktops
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Journal Entries
W & Sal Pay
Materials
WIP-Job 1
FG
Accts Pay
Overhead
WIP-Job 2
CGS
WIP consists of job cost sheets
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchase Materials on Account (a)
W & Sal Pay
Materials
WIP-Job 1
FG
WIP-Job 2
CGS
a
Accts Pay
Overhead
a
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Use Materials Requisition to Request
Materials for Jobs (b)
W & Sal Pay
Materials
a
Accts Pay
a
b
Overhead
b
WIP-Job 1
FG
b
WIP-Job 2
CGS
b
Direct materials to WIP
Indirect materials to Overhead
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Apply Overhead (d)
W & Sal Pay
c
Accts Pay
a
Materials
a
b
Overhead
b
c
d
WIP-Job 1
FG
b
c
d
WIP-Job 2
CGS
b
c
d
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Complete Job 1 (e)
W & Sal Pay
c
Accts Pay
a
Materials
a
b
Overhead
b
c
d
WIP-Job 1
b
c
d
e
WIP-Job 2
FG
e
CGS
b
c
d
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sell Job (f, g)
W & Sal Pay
Materials
c
Accts Pay
a
b
Overhead
a
b
c
d
Accts Rec
g
WIP-Job 1
e
b
c
d
WIP-Job 2
b
c
d
FG
e
f
CGS
f
Sales
g
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Standard Cost System
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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
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Management Use of Job Order Costing
Systems
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Estimate future job costs
Establish realistic bids and selling prices
Develop budgets and standards
Compare actual costs to estimated costs
Furnish performance evaluation information
based on profitability of jobs
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Product and Material Losses
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Shrinkage
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Evaporation
Leakage
Oxidation
Production errors
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Defects can be economically reworked
Spoilage cannot be economically reworked
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Normal vs. Abnormal Loss
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Normal Loss—expected
during production
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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
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Abnormal Loss—
exceeds what is
expected during
production
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Abnormal spoilage
 Period cost—includes
cost of abnormal loss
less any disposal value
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Questions
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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?
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Potential Ethical Issues
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Inflating costs assigned to cost-plus contracts
Assigning costs from a fixed-fee contract to a
cost-plus contract
Substituting materials with inferior quality
Overstating costs included in Work in
Process
Using methods or materials that violate
intellectual property rights of other firms
Recording sales value of defective work as
“Other Revenue”
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.