Cost Accounting
Traditions and Innovations
Barfield, Raiborn, Kinney
Chapter 5
Job Order Costing
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
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
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
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
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
Costing Systems
Job order costing
Process costing
COLA
Which Costing System?
Tax
Return
Job Order Costing System
• Each job is a cost object
• Accumulate costs for each job
• Use subsidiary ledger
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
• Journal entry
Work in Process Inventory (direct material)
Manufacturing Overhead (indirect material)
Raw Material Inventory
Materials Requisition Form
No. ###
Date ___________________
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
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
Job Order Cost Sheet
Customer ____________
Job No. ###
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 _________
========
Employee Time Sheet
• Time worked on each job
• Journal entry
Work in Process Inventory (direct labor)
Overhead (indirect labor)
Salaries and Wages Payable
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
Overhead
Overhead Account
Actual Overhead
Applied Overhead
• Journal Entry
Work in Process Inventory
Overhead (applied)
Completion of a Job
• Move job cost sheet from WIP subsidiary to
Finished Goods subsidiary
• Journal entry
Finished Goods Inventory
Work in Process Inventory
Sale
• Journal entry
Accounts Receivable
Sale
Cost of Goods Sold
Finished Goods Inventory
Job Order Costing and Technology
• Automate data collection and data entry
• Accounting software includes Job Costing
modules
• Share information using intranet
Journal Entries
W & Sal Pay
Materials
WIP-Job 1
FG
Accts Pay
Overhead
WIP-Job 2
CGS
WIP consists of job cost sheets
Purchase Materials on Account (a)
W & Sal Pay
Materials
WIP-Job 1
FG
WIP-Job 2
CGS
a
Accts Pay
a
Overhead
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
Record Labor from Employee Time
Sheets (c)
W & Sal Pay
c
a
Accts Pay
a
Materials
b
Overhead
b
c
WIP-Job 1
FG
b
c
WIP-Job 2
CGS
b
c
Direct labor to WIP
Indirect labor to Overhead
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
b
c
d
CGS
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
b
c
d
FG
e
CGS
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
CGS
f
Sales
g
f
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
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?