Job-Order Costing
CHAPTER 4
Job-Order Costing: An
Overview
Job-order costing systems are used when:
1.Many different products are produced each period.
2.Products are manufactured to order.
3.The unique nature of each order requires tracing or
allocating costs to each job, and maintaining cost
records for each job.
Job-Order Costing: An
Overview
Examples of companies that would use
job-order costing include:
1. Boeing (aircraft manufacturing)
2. Bechtel International (large scale construction)
3. Walt Disney Studios (movie production)
Job-Order Costing – An
Example
Direct Materials
Direct Labor
Job No. 1
Job No. 2
Job No. 3
Charge direct
material and
direct labor
costs to each
job as work is
performed.
Job-Order Costing – An
Example
Direct Materials
Direct Labor
Manufacturing
Overhead
Job No. 1
Job No. 2
Job No. 3
Manufacturing
Overhead,
including indirect
materials and
indirect labor, are
allocated to all
jobs rather than
directly traced to
each job.
The Job Cost Sheet
PearCo Job Cost Sheet
Job Number A - 143
Department B3
Item Wooden cargo crate
Direct Materials
Req. No. Amount
Date Initiated 3-4-11
Date Completed
Units Completed
Direct Labor
Ticket
Hours Amount
Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Product Cost
Manufacturing Overhead
Hours
Rate
Amount
Units Shipped
Date
Number Balance
Measuring Direct
Materials Cost
Will E. Delite
Measuring Direct
Materials Cost
Measuring Direct Labor
Costs
Job-Order Cost
Accounting
Your date here
YOUR FOOTER HERE
11
Learning Objective 4-1
Compute a
predetermined overhead
rate.
Why Use an Allocation
Base?
An allocation base, such as direct labor hours, direct
labor dollars, or machine hours, is used to assign
manufacturing overhead to products.
We use an allocation base because:
a)It is impossible or difficult to trace overhead costs to particular jobs.
b)Manufacturing overhead consists of many different items ranging from
the grease used in machines to the production manager’s salary.
c)Many types of manufacturing overhead costs are fixed even though
output fluctuates during the period.
Manufacturing Overhead
Application
The predetermined overhead rate (POHR) used to apply overhead to jobs is
determined before the period begins.
POHR =
Estimated total manufacturing
overhead cost for the coming period
Estimated total units in the
allocation base for the coming period
Ideally, the allocation base is a
cost driver that causes
overhead.
The Need for a POHR
Using a predetermined rate makes it
possible to estimate total job costs sooner.
Actual overhead for the period is not
known until the end of the period.
Computing Predetermined Overhead
Rates
The predetermined overhead rate is computed before the
period begins using a four-step process.
1. Estimate the total amount of the allocation base (the
denominator) that will be required for next period’s
estimated level of production.
2. Estimate the total fixed manufacturing overhead cost for
the coming period and the variable manufacturing
overhead cost per unit of the allocation base.
3. The third step is to use a cost formula to estimate the
total manufacturing overhead cost for the coming
period.
4. Compute the predetermined overhead rate.
Problem 4
Hercules Company begins operations on April 1. Information from job
cost sheets shows the following
Job #
April
May
June
101
102
103
104
105
5,200
4,700
1,200
5,400
3,800
2,000
5,800
5,200
4,200
3,800
Your date here
YOUR FOOTER HERE
Month
Completed
May
June
April
June
Not yet complete
17
Problem 4
Each job was sold for 25% above its cost in the month following
completion
1. Compute for the balance of Work In Process Inventory at the end of
each month.
2. Compute for the balance of Finished Goods Inventory at the end of
each month.
3. Compute for the gross profit for May, June, and July.
Your date here
YOUR FOOTER HERE
18
Your date here
YOUR FOOTER HERE
19
Problem 5
Star Wars Corporation obtains the following information from its
records for the month of August:
Jobs Completed and Sold
Job 110
Job 220
Job 330
Direct materials cost P 15,000 P 25,000
P 20,000
Direct labor cost
40,000
50,000
30,000
Factory Overhead
25,000
30,000
20,000
Units Manufactured
5,000 u
4,000 u
10,000
Gross Profit Rate
20%
25%
30%
(based on Sales)
Your date here
YOUR FOOTER HERE
20
Problem 5
Requirement:
1. Prepare in Summary form, the Journal entries
that would have been made during the month to
record the above.
2. Prepare schedules showing the gross profit or
loss for August.
◦ A. for the business as a whole.
◦ B. for each job completed and sold.
Your date here
YOUR FOOTER HERE
21
Your date here
YOUR FOOTER HERE
22
Your date here
YOUR FOOTER HERE
23
Problem 11
Assume the following relates to the Candy Corporation for the month of July
Job 101
Job 102
Job 103
In Process, July 1
Materials
P 40,000
P 30,000
-
Labor
60,000
40,000
-
Overhead
75,000
50,000
Materials
55,000
80,000
92,000
Labor
80,000
95,000
115,000
Cost added in July
Your date here
YOUR FOOTER HERE
24
Problem 10
Actual Overhead incurred in July amounted to P 375,000. Job no. 101 and 102
were completed and transferred to finished goods warehouse in July. Overhead is
applied using a predetermined overhead rate. Job 101 was sold for P 550,000.
Requirement: Compute for the following:
1. Work in process, July 1
2. Overhead assigned to production in July assuming same factory OH rate
3. Cost of goods manufactured
4. Cost of goods sold (actual)
5. Finished goods inventory, July 31
6. Work in process inventory, July 31
Your date here
YOUR FOOTER HERE
25
Your date here
YOUR FOOTER HERE
26
Your date here
YOUR FOOTER HERE
27