JOB ORDER SYSTEM- is used in
those manufacturing situations where
many different products, jobs, or batches
of production are being produced each
period. Examples of industries that
would typically use manufacturing, ship
building, and equipment manufacturing.
Job order costing is also used as
extensively in the service industries.
Hospitals, law firms, advertising
agencies, and repair shops, for example,
all use job order costing to accumulate
costs for accounting and billing
purposes. Because the output of firms
involved in the industries mentioned
tends to be heterogenous, managers need
a costing system in which costs can be
accumulated by job (or by client or by
customer) and which distinct unit cost
can be determined for each job
completed.
Characteristics of a job order costing
system:
1. It collects all manufacturing costs
and assigns them to specific jobs
or batches of product.
2. It measures cocts for each
completed job, rather than for set
time period.
3. It uses just one Work In Process
Inventory Control account in the
general ledger.
Major source documents for job order
costing
1. Job cost sheet
a. These
records
accumulate
product costs of specific units or
small batches of units for both
product costing and control
purposes.
b.
The file of job cost records for
uncompleted jobs serves as a
perpetual book inventory and the
subsidiary ledger
Process account.
for
Work
in
2. Materials stock card
a. These records are the perpetual
book inventory of costs and
quantities of materials on hand.
b. The file of material stock cards
for unissued materials is the
subsidiary ledger for Material
Control.
3. Finished goods stock card
a. These records are the perpetual
book inventory of costs and
quantities of completed books.
b. The file of finished goods stock
card for unsold goods is the
subsidiary ledger of Finished
Goods Control.
4. Factory overhead cost record
a. These
records
accumulate
detailed manufacturing cost by
department.
b. The file of these records for the
accounting
period
is
the
subsidiary ledger for Factory
Overhead Control.
5. Material
requisition,
time
ticket, and clock card
a. The source documents for
charging cost to jobs and
departments.
b. To aid in fixing responsibility
for control and usage of labor
and materials.
Spoiled goods are partially or fully
completed units with imperfections
that are not correctible either because
it is not possible to correct them or
because it is not economical to
correct them.
1. Spoilage due to customer’s
specification- if spoilage occurs because
of actions taken by the customer, then
the loss on the spoiled units is charged to
the specific job. The factory overhead
rate does not include an allowance for
spoiled work.
Work In Process account and deducted
from the material cost of the job.
2. Spoilage caused by an internal
failure- if spoilage occurs because of an
internal failure, such as an error by the
employee or defective materials or
machinery, the unrecovered cost of the
spoiled goods should be charged to
Factory Overhead Control. The overhead
rate will include an allowance for
spoiled
work;
therefore
the
predetermined factory overhead rate will
be higher.
3. If the scrap results from defective
materials or broken parts, it should be
considered an internal failure which
management should try to reduce or
eliminate.
2. If the scrap is traceable to indirect
materials, the amount realized from the
sale of the scrap is credited to Factory
Overhead Control.
JUST-IN-TIME means that raw
materials are received just in time to be
assembled into products are completed
just in time to be shipped to customers.
Defective units are units with
imperfections that can be corrected by
reprocessing the units.
Just-in-time (JIT) costing differs from
traditional costing with regards to the
accounts used and the time of cost
recording. There are basically three
major differences.
1.
Rework due to customer’s
specifications- if the rework is caused
by the customer, the additional costs
incurred to reprocess the units are
charged to the job will cause an increase
in the unit cost.
1. Instead of using separate accounts for
Materials and Work In Process as in
traditional costing, JIT costing combines
these into Raw and In-Process account.
2.
Rework caused by an internal
failure- if the rework is caused by an
internal failure, the cost should be
charged to Factory Overhead Control.
2. Direct labor is usually considered a
minor cost item in a JIT setting so no
separate account for direct labor is
created. Direct labor and factory
overhead are usually charged to Cost of
Goods Sold account.
Scrap includes (1) fillings or trimmings
remaining after processing the materials,
(2) defective materials that cannot be
used or returned to vendors, and (3)
broken parts resulting from employee or
machine failures.
1. If the scrap is directly traceable to
specific job, the amount realized from
the sale of the scrap is credited to the
3. In traditional costing overhead is
applied to products as they are being
produced and is recorded into the Work
In Process account. In JIT costing,
overhead is not applied to production
until they are completed. When products
are completed under JIT costing,
conversion cost is charged to Cost of
Goods Sold, since the goods are sold
soon after production is completed.
Problem 1
The ZAMBALES MANUFACTURING
COMPANY
had
the
following
inventories on August 1, 2013.
Finished Goods
Work in Process
Materials
P75,000
55,500
66,000
The work in process account controls
two jobs
Materials
Labor
FOH
Job 401
P9,000
7,500
6,000
P22,500
Job 402
P 16,800
9,000
7,200
P33,000
The following information pertains to
August operations:
1. Materials purchased on account P84,
000.
2. Materials issued for production,
P75,000. Of thi00s amount, P9,000 was
for indirect materials; the difference was
distributed: P16,500 to Job 401; P21,000
to Job 402; and P28,500 to Job 403.
3. Materials returned to the warehouse
from the factory, P2,400, of which P900
was for indirect materials, the balance
from Job 403.
4. Materials returned to vendors, P3,000.
5. Payroll after deducting P9,075 for
withholding taxes, P4,800 for SSS
Premiums, P1,125 for PhilHealth, and
P3,600 for Pag-ibig, was P98,400. The
payroll due the employees was paid
during the month.
6. The payroll was distributed as
follows: P31,200 to Job 401; P37,500 to
Job 402, P31,500 to Job 403 and the
balance represents indirect labor.
7. The share of the employer for payroll
was recorded- P6,000 for SSS
Premiums, P1,125 for Philhealth
Contributions, and P3,600 for Pag-ibig
Funds.
8. Factory overhead, other than any
previously mentioned, amounted to
P45,000. Included in this figure were
P9,000 fore depreciation of factory
building and equipment, and P2,850 for
expired insurance on the factory. The
remaining overhead was unpaid at the
end of August.
9. Factory overhead was applied to
production at the rate of 80% of direct
labor cost.
10. Job 401 was shipped and billed at a
gross profit of 40% of the cost of goods
sold.
12. Cash collections from accounts
receivable
during
August
were
P105,000.
Requirements:
1. Journal entries to record above
transactions.
2. Job order cost sheet.
3. Cost of goods sold statement.
Problem 2
BATAAN
MANUFACTURING
COMPANY charges factory overhead to
production at a predetermined rate based
on direct labor cost. The rate has
remained the same for the last two years.
The following data are given in its
production:
Job 1
Job 2 Job 3 Job 4
WIP
Jan. 1
DM P8,000 P15,000
DL
3,200
6,500
AOH 1,920
3,900
Total
estimated and inventory account
balances are adjusted. Raw materials
cost is back-flushed from RIP to
Finished Goods.
WIP
Jan.1
DM P23,000
DL
9,700
AOH
5,820
Cost
added
-January
DM
3,000
DL
1,200
8,500 18,000 9,500
3,150 7,500 2,700
Total
39,000
14,550
Job 1, 2 and 3 were completed during
the month. Job 1 and 3 were sold at
180% of cost. The balance of the factory
overhead control account is P 11,640.
The variance is allocated between cost of
goods sold, finished goods, and work in
process.
Required:
1. Predetermined factory overhead rate.
2. The cost of Jan. 1 Work in Process
inventory
3. The amount of factory overhead
applied to production
4. The cost of goods completed and
tranferred to finished goods inventory
5. The cost of goods sold (actual)
6. The cost of finished goods inventory
end.
7. The cost of the work in process
inventory end.
Problem 3
The
PANGASNAN
MANUFACTURING COMPANY has a
cycle of 5.0 days, uses an in process
(RIP) account and charges all conversion
costs to Cost of goods Sold. At
conversion cost components are
Beginning balance of RIP
account, including P18,600 of
conversion cost
P42,000
Beginning balance of FG
account, including P28,500
of conversion cost
54,000
Raw materials purchased on
credit
1,050,000
Ending RIP inventory, including
P44,100 conversion cost
estimate
67,200
Ending FG inventory, including
P31,500 conversion cost
estimate
59,400
Conversion costs are P375,000
for direct labor and P516,000
overhead
891,000
Required: Journal entries to record the
given information.
Problem 4
PAMPANGA
MANUFACTURING
COMPANY received an order’s
exacting specifications, it is anticipated
that defective and spoiled units will
exceed the normal rate. the material cost
per unit is P240, labor is P582, and
factory overhead is applied at 100% of
direct labor cost. During production, 10
were found to be defective and required
the following total additional costsmaterials- P291, labor- P375. On final
inspection, 4 units were classified as
seconds and sold for P1,200 each, the
proceeds being credited to the order. The
buyer has agreed to accept the remaining
good machines, although the acceptable
units are fewer than the number ordered.
Required:
1. Cost of the completed units
2. Entries to record the given
transactions.
3. Assuming the imperfection is due to
internal failure, compute the cost of the
completed units and give the entries to
record the given transactions.
Problem 5
BULACAN
MANUFACTURING
COMPANY
allocates
service
department budgeted costs to production
departments as a matter of company
policy. The production departments are
S1 and S2, and the monthly data are: the
factory overhead rate for P1 is computed
based on 20,000 direct labor hours and
P2 based on 15,000 machine hours.
the overhead rate for each production
activity that causes overhead costs, the
resulting product costs will reflect an
accurate measure of overhead cost. The
direct material cost is P120 per unit. The
budgeted hours are 8,030 direct labor
hours. The accountant has identified
activity centers to which overhead costs
are assigned. The cost pool amounts for
these centers and their selected activity
drivers for 2013 are shown below.
ACTIVITY
CENTERS
Material
handling
Scheduling
and set-ups
COST ACTIVITY
DRIVERS
P60,000
80,000
Design section
Budgeted
FOH
P1
P2
S1
S2
P564,000
510,000
135,000
105,600
Services provided
by
S1
S2
40%
50%
50%
30%
20%
10%
Required: Compute the factory overhead
rate P1 and P2 after distribution of
service department costs using:
1. Direct method
2. Step method- start with S1
3. Simultaneous method (algebraic
method)
Problem 6
For
many
years
TARLAC
MANUFACTURING COMPANY has
used a manufacturing overhead based on
direct labor hours. a new plant
accountant suggested that the company
may be able to assign overhead costs to
products more accurately by using an
activity based costing system. The
accountant explains that by computing
No. of parts
10,750
50,000
P200,750
1,200 times
handled
400 setups
100
changes
500 parts
The company’s products and other
operating statistics follows
Prod Qty DLH DL No. No. No. No.
Prod used cost of of of of
times parts design setup
handled
A
B
50
100
100 2k 20
400 8k 50
charges
10
15
2
5
5
8
Required:
1. Compute the unit cost for each
product using direct labor hours as the
overhead application rate.
2. Compute the unit cost for each
product using activity based costing.
Multiple Choice
Lara Company has a cycle time of 3
days, uses a raw and in process (RIP)
account, and charges all conversion cost
to Cost of Goods Sold. At the end of
each month, all inventories are counted,
their conversion cost components are
estimated, and inventory account
balances are adjusted. Raw materials
cost is backflushed from RIP to Finished
Goods.
The following information is for June.
Beginning balance of RIP
account, including P3,000 of
conversion cost
P29,250
Beginning balance of finished
goods account, including
P10,000 of conversion
cost
30,000
Raw materials received on
credit
562,500
Direct labor cost, P375,000
,factory overhead applied
P450,000
Ending RIP inventory per
physical count, including
P4,500 conversion cost
32,000
Ending finished goods
inventory per count, including
P8,750 conversion cost
26,250
1. The material cost of (1) the units
completed and (2) the units sold are:
a. (1) P561,250 (2) P563,750
The accounting records for 2013 of
EGGS Manufacturing Company showed
the following information:
Increase in raw materials
inventory
P45,000
Decrease in Finished
Goods inventory
150,000
Increase in Work in
Process inventory
60,000
Raw materials purchased
1,290,000
Direct labor payroll
600,000
Factory overhead
900,000
Freight out
135,000
2. The cost of raw materials used for the
period amounted to:
a. P1,245,000
A company has identified the following
overhead costs and cost drivers for the
coming year
OH
item
Cost
driver
Budgeted
Activity
Budgeted
OH
200
P20,000
InspecNo.
6,500
tion of inspect
tion
130,000
Machine No.
set-up
of set
up
Material
handling
Engrng
Total
No.
8,000
of
material
moves
80,000
No.
1,000
of
engineering
hrs.
50,000
P280,000
The following information was collected
on three jobs that were completed during
the year:
J1
J2
J3
DM
P5,000
P12,000 P8,000
DL
2,000
2,000
4,000
Units
completed
100
50
200
No. of
set ups
1
2
4
No. of
inspections
20
10
30
No. of material
moves
30
10
50
No. of
engineering hrs
10
50
10
Direct material was requisitioned as
follows for each job, respectively:
30%, 25%, and 25%, the balance of
the requisitions were considered
indirect. Direct labor hours per job
are 2,500, 3,100, and 4,200
respectively. Indirect labor is
P33,000. Other actual overhead costs
totaled P36,000.
Budgeted direct labor cost was P100,00
and budgeted direct material cost was
P280,000.
3. if the company used activity-basedcosting, how much overhead cost should
be assigned to Job 103 (J3)?
b. P2,000
5. What is the total amount of actual
factory overhead?
c. P93,000
The following information pertains to
Alma Co. manufacturing process
2013
March 1
March 31
6. If Job 503 is completed and
transferred, how much is the total
cost transferred to Finished Goods
Inventory?
c. P108,540
Inventories
DM
P36,000
P30,000
WIP
18,000
12,000
FG
54,000
72,000
Additional information for the month of
March:
DM purchased
84,000
DL payroll
60,000
DL rate per hour
7.50
FOH rate per DLH
10.00
4. How much must be the prime
cost, conversion cost, and cost of
goods manufactured for the
month?
Prime
Conversion COGM
Cost
Cost
d. 150,000
140,000
236,000
Adams Company used a job order
costing system and the following
information is available from the
records. The company has 3 jobs in
process: 501, 502, 503.
Raw materials used
P120,000
DL per hour
8.50
OH applied based on DL cost 120%
Miracle Company provides you with
the following information
Jan. 1, 2013
Inventories:
Materials P ?
WIP
80,000
FG
60,000
January transactions:
Purchases of materials,
FOH (75% of DL cost)
Selling & adm. exp.
(12.5% of sales)
FOH Control
Net Income for Jan.
Indirect materials used
Jan. 31, 2013
P50,000
95,000
78,000
P46,000
63,000
25,000
62,800
25,200
1,000
7. Compute for materials inventory, Jan.
1 COGM and COGS (normal) for the
month of January, 2013.
d.
Materials Invty. COGM COGS
Jan. 1
40,000
168,000 150,000
c. P 25,560
Job no. 41 (consisting of 5,000 units)
was started in September, 2013 and it is
special in nature because of its per unit
and includes a P.05 provision for
defective work. The prime cost incurred
in September are: Direct materials, 9,000
and direct labor, P 4,800. Upon
inspection, 80 units were found with
following reprocessing costs, direct
materials, P 1,500 and direct labor, P
800.
8. The unit cost of Job 41, upon
completion is:
c. P 3.98
Work in process of Alonzo Corporation
on July 1, 2013 (per general ledger) is P
22,800
Per cost sheets:
Job 101
Job 102
DM
P 6,000
P 8,000
DL
3,000
2,500
Amount charged to Work in process for
July, 2013
DM
DL
Job101
Job102
P3,000
1,000
P2,000
1,500
Job103
Job104
P6,000 P4,500
2,600 2,000
Factory overhead is applied to
production based on direct labor cost.
Jobs 101 and 103 are completed during
the month.
9. Cost of goods put into process must
be:
d. P 49,660
10. The cost of goods manufactured for
the month of July is
Marco Corporation has a job order cost
system. The following debits (credits)
appeared in the general ledger account
work-in-process for the month of
September, 2013:
Sept. 1 Balance
Sept. 30, DM
Sept. 30, DL
Sept. 30, FOH
Sept. 30, to finished goods
P12,000
40,000
30,000
27,000
(100,000)
Marco applies overhead to production at
a predetermined rate of 90% based on
the direct labor cost. Job no. 232, the
only job still in process at the end of
September, 2013, has been charged with
factory overhead of P 2,250.
11. What was the amount of direct
materials charged to Job 232 as at the
end of September, 2012?
c. P 4,250
Justine Company budgeted total variable
costs at P 180,000 for the current period.
In addition, they budgeted costs for
factory rent at P 215,000, costs for
depreciation on office equipment at P
12,000, costs for office rent at P 92,000,
and costs for depreciation of factory
equipment at P 38,000. All these costs
were based upon estimated machine
hours of 80,000. Actual factory overhead
for the period amounted to P 387,875
and machine hours used totaled 74,000
hours.
12. What was the over or
underapplied factory overhead for
the period?
a. P 12,650 overapplied
Multiple Choice
Tudors, Inc purchases and resells a
single item of product. Inventory at the
beginning of September, 2013 was 400
units, values at P 1.80 each. Further
receipts and sales during the month were
as follows:
Units
Sept. 8 Rcpts 600
Sept. 14 Rcpts 500
Sept. 25 Sales 1,250
Pesos Per Unit
P 2.10
?
4.00
The company uses FIFO. Gross margin
for September was P 2,500
1. What was the cost per unit of the 500
units received on Sept. 14?
a. P 2.08
c. P 1.94
b. P 2.00
d. P 1.04
The accounting records for 2013 of
Wagner Co. showed the following:
Decrease in RM inventory
Decrease in FG inventory
RM purchased
DL Payroll
Factory overhead
Freight out
P 45,000
150,000
1,290,000
600,000
900,000
135,000
2. The cost of raw materials used for Job
No. 2468, which is being carried out by
Flexy Co. to meet a customer’s order.
Dept. A
Dept. B
DM used
P 5,000
P 3,000
DLH employed
400
200
DL rate per hour
P 4.00
P 5.00
OH rate per hour
P 4.00
P 4.00
Adm. and other OH 20% of full production
cost
Profit mark-up
25% of selling price .
3. The selling price to the customer of Job
2468 is:
a. P 16,250
c. P 17,333
b. P 20,800
d. P 19,500
Ronald Factory provides for an incentive
scheme for its factory workers which
features a combined minimum guaranteed
wage and a piece rate. Each worker is paid P
11.25 per piece with a minimum guaranteed
wage of P 875 per week. Production report
for the week show:
Employee
R
O
L
A
N
D
Units produced
67
78
80
82
72
75
4. The portion of the weekly payroll that
should be charged to factory overhead is
a. P 5,325.00
c. P 5, 217.50
b. P 5,275.00
d. P 217.50
Worley Co. has overapplied overhead of
P 45,000 for the year ended Dec 31,
2013, balances from Worley’s records
are as follows:
COGS
720,000
Inventories:
DM
36,000
WIP
54,000
FG
90,000
Under Worley’s cost accounting system,
over or underapplied overhead is
allocated to appropriate inventories and
cost of good sold based on year-end
balances.
5. In its 1023 income statement, Worley
should report cost of goods sold at
a. P 682,500
c. P 684,000
b. P 756,000
d. P 757,500
b. (P 23,562.50)
The following were taken from the
books of Marvin Company.
RM
WIP
FG
Jan. 1
P268,000
0
43,000
(100 units)
Materials
purchased
DL
FOH
Sales
March 31
P 167,000
0
?
(200 units)
P 1,946,700
2,125,800
764,000
(12,400 units at P 535)
The company uses the FIFO method for
costing inventories.
6. The number of units manufactured is:
a. 11,900
c. 12,500
b. 12,000
d. 15,200
7. The cost of good manufactured per
unit is:
a. P 300
c. P 395
b. P 350
d. P 420
8. The cost of goods sold is:
a. P 4,091,500
c. P 4,901,500
b. P 4,109,500
d. P $,910,500
Rumors Company applied factory
overhead as follows:
Department
Fabricating
Spreading
Gossiping
FOH Rate
P 7.75 per Machine hour
15.10 per Machine hour
2.125 per machine hour
Actual machine hours are : 19,000 hours
for fabricating; 27,500 hours for
spreading and 5,500 hours for gossiping.
9. If the actual FOH cost for the period is
P 574,375, how much is over (under)
applied FOH?
a. (P 11,875.00)
c. ( P 187.50)
d.( P 76,125.00)
Hamilton Company uses a job order
costing. FOH is applied to production at
a budgeted rate of 150% of direct labor
costs. Any overapplied or underapplied
factory overhead is closed to the cost of
goods sold account at the end of the
month. Additional information is
available as follows: Job 101 was the
only job in process at January 31, 2013
with accumulated costs as follows:
DM
DL
FOH
P 4,000
2,000
3,000
P 9,000
Jobs 102, 103 and 104 were started
during February. Direct materials
requisitions for Februry totaled P
26,000. Actual factory overhead was P
32,000 for February. The only job still in
process at the end of February was Job
104, with costs of P 2,800 for direct
materials and P 1,800 for direct labor.
10. The cost of goods manufactured for
February was:
a. P 77,700
c. P 78,000
b. P 79,700
d. P 85,000