JOB ORDER
COST ACCOUNTING
Chapter 19
© 2009 The McGraw-Hill Companies, Inc.,
All Rights Reserved
C1
COST ACCOUNTING SYSTEMS
Process
Costing
Job
Costing
Chapter 20
Used for production of large, unique, or
high-cost items.
Built to order rather than mass produced.
Many costs can be directly traced to each job.
McGraw-Hill/Irwin
Slide 2
JOB ORDER PRODUCTION
C2
Process
Costing
Job
Costing
Chapter 20
Typical job order cost applications:
Special-order printing
Building construction
Also used in service industry
Hospitals
Law firms
McGraw-Hill/Irwin
Slide 3
C2
EVENTS IN JOB ORDER COSTING
Receive order
from
customer
Predict cost
to complete
job
McGraw-Hill/Irwin
Schedule the
job
Negotiate a sales price
and decide whether to
pursue the job.
Slide 4
C2
JOB ORDER PRODUCTION ACTIVITIES
Indirect
Materials
Direct
Indirect
Factory Allocate
Overhead
Labor
McGraw-Hill/Irwin
Direct
Goods in
Process
Finished
Goods
Cost of
Goods
Sold
Slide 5
C3
JOB ORDER COST DOCUMENTS
The primary
document for
tracking the costs
associated with a
given job is the job
cost sheet.
sheet
Let’s investigate
McGraw-Hill/Irwin
Slide 6
JOB COST SHEET
C3
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/09 Date started 3/3/09
Date completed
Direct Materials
Date
Req.
Cost
Total
Total
Remarks
McGraw-Hill/Irwin
Direct Labor
Date
Ticket
Cost
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
Slide 7
JOB COST SHEET
C3
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/09 Date started 3/3/09
Date completed
Direct Materials
Date
Req.
Cost
Total
A materials requisition
is used
the
Direct
Labor to authorize
Factory Overhead
Date
Ticket
Cost
Date
Rate
use of
materials
on aCost
job.
Total
Remarks
Total
Cost Summary
Let’s
see one
Direct Materials
Direct Labor
Factory Overhead
Total Cost
McGraw-Hill/Irwin
Slide 8
MATERIALS REQUISITION
P1
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-09
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
1
M. Bateman
Requested By
Date Provided
Received By
C. Luther
3-7-09
C. Luther
Remarks
McGraw-Hill/Irwin
Slide 9
MATERIALS REQUISITION
P1
Proper
authorization
Cost of material is
charged to Job B15.
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-09
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
1
M. Bateman
Requested By
Date Provided
Received By
C. Luther
3-7-09
C. Luther
Remarks
McGraw-Hill/Irwin
Slide 10
MATERIALS REQUISITION
P1
Type and quantity of material
charged to Job B15.
Pre-printed, sequentially
numbered form
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-09
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
1
M. Bateman
Requested By
Date Provided
Received By
C. Luther
3-7-09
C. Luther
Remarks
McGraw-Hill/Irwin
Slide 11
MATERIALS REQUISITION
P1
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-09
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Requested By
C. Luther
The materials
Quantity
Provided 1
requisition
also3-7-09
serves as
Dateform
Provided
Filled
By source
By
the
M. Bateman
document Received
for recording
C. material
Luther
usage in the accounting records.
Remarks
McGraw-Hill/Irwin
Slide 12
MATERIALS LEDGER CARD
P1
Road Warriors Materials Ledger Card
Item
Alarm sys. wiring
Maximum Qty.
5 units
Stock No.
M-347
Minimum Qty. 1 unit
Location
Bin137
Reorder Qty. 2 units
Received
Issued
Balance
Rec.
Unit Total Req.
Unit Total
Unit Total
Date Rep. Units Cost Cost No. Units Cost Cost Units Cost Cost
1
$225 $225
3/4/09 C7117 2
$225 $450
3
$225 $675
3/7/09
R4705 1 $225 $225
2
$225 $450
McGraw-Hill/Irwin
Slide 13
JOB COST SHEET
P1
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/09 Date started 3/3/09
Date completed
Direct Materials
Date
Req.
Cost
3/7/09 R4705 $ 225
Total
Total
Remarks
McGraw-Hill/Irwin
Direct Labor
Date
Ticket
Cost
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$ 225
Slide 14
JOB COST SHEET
P2
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Accumulate
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition direct labor
Date promised 3/15/09 Date started 3/3/09
Date completed
costs by
Direct Materials
Date
Req.
Cost
3/7/09 R4705 $ 225
Total
Total
Remarks
McGraw-Hill/Irwin
Direct Labor
Date
Ticket
Cost
Factorymeans
Overheadof
Date
Rate
Cost
Total
a
work record,
such as a time
ticket, for each
employee.
Cost Summary
Direct Materials
$ 225
Direct Labor
Let’s see one
Factory Overhead
Total Cost
Slide 15
LABOR TIME TICKET
P2
Road Warriors Time Ticket No. L-3479
Job No.
B15
Date
Employee Name
T. Zeller
3/8/09
Employee Number
3969
TIME AND RATE INFORMATION:
Start Time
Elapsed Time
Approved By
9:00
3.0
Finish Time
12:00
Hourly Rate
$20.00
Total Cost
$60.00
C. Luther
Remarks
McGraw-Hill/Irwin
Slide 16
JOB COST SHEET
P2
Road Warriors Job Cost Sheet
Customer Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/09 Date started 3/3/09
Date completed
Direct Materials
Date
Req.
Cost
3/7/09 R4705 $ 225
Total
Total
Remarks
McGraw-Hill/Irwin
Direct Labor
Date
Ticket
Cost
3/8/09 L3479 $ 60
$
Factory Overhead
Date
Rate
Cost
60 Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$ 225
60
Slide 17
JOB COST SHEET
P3
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/09 Date started 3/3/09
Date completed
Direct Materials
Date
Req.
Cost
3/7/09 R4705 $ 225
Total
Direct Labor
Date
Ticket
Cost
3/8/09 L3479 $
60
Total
$
Factory Overhead
Date
Rate
Cost
60 Total
Allocate manufacturing overhead to jobs using
Remarks
Cost Summary
a predetermined
overhead
rate
Direct Materials
$ 225
Direct Labor
Factory Overhead
Total Cost
McGraw-Hill/Irwin
60
Let’s do it
Slide 18
JOB COST SHEET
P3
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/09 Date started 3/3/09
Date completed
Direct Materials
Date
Req.
Cost
3/7/09 R4705 $ 225
Total
Total
Remarks
McGraw-Hill/Irwin
Direct Labor
Factory Overhead
Date
Ticket
Cost
Date
Rate
Cost
3/8/09 L3479 $ 60 3/08/09
160% $
96
$
60 Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$
96
$ 225
60
$
96
$ 381
Slide 19
P3
PREDETERMINED OVERHEAD RATE
Road Warriors uses a predetermined
overhead rate (POHR) based on direct
labor cost to apply overhead to jobs.
POHR =
POHR =
McGraw-Hill/Irwin
Estimated total manufacturing
overhead cost for the coming period
Estimated total direct labor costs
for the coming period
$200,000
$125,000
= 160% of direct labor $
Slide 20
JOB ORDER COST FLOWS AND
REPORTS
Let’s summarize
the document
flow we have
been discussing
in a job-order
costing system.
McGraw-Hill/Irwin
Slide 21
P1
Material Cost Flows and Documents
The materials
requisition
indicates the cost
of direct
materials
to charge to
jobs
and the cost of
indirect materials
to charge to
overhead.
McGraw-Hill/Irwin
Direct
materials
JobCost
Cost
Job
Job
Cost
Sheets
Job
Cost
Sheets
Sheets
Sheets
Materials
Materials
Ledger
Cards
Materials
Ledger
Cards
Materials
Ledger Cards
Requisition
Indirect
materials
Factory
Overhead
Account
Slide 22
P2
Labor Cost Flows and Documents
Direct
Employee time
Labor
tickets indicate
the cost of
Employee Time
direct labor
Employee
Time
Ticket
Employee
Time
to charge to Employee
Ticket
Time
Ticket
jobs
Ticket
and the cost
of indirect labor
to charge to
Indirect
Labor
overhead.
McGraw-Hill/Irwin
JobCost
Cost
Job
Job
Cost
Sheets
Job
Cost
Sheets
Sheets
Sheets
Factory
Overhead
Account
Slide 23
Summary of Cost Flows
Let’s examine the
cost flows in a job
order system.
We will use
T-accounts and
start with
materials.
McGraw-Hill/Irwin
Slide 24
Summary of Cost Flows
P1
Dr
Cr
Raw Materials
Material
Direct
Purchases Material
Indirect
Material
Dr
Cr
Goods in Process
Direct
Material
Dr
Cr
Factory Overhead
Actual
Overhead
Costs
McGraw-Hill/Irwin
Slide 25
Summary of Cost Flows
Next let’s add
labor costs and
applied factory
overhead to the
job order cost
flows.
McGraw-Hill/Irwin
Slide 26
P2
Summary of Cost Flows
P3
Dr
Cr
Factory Payroll
Incurred
Direct
Labor
Indirect
Labor
Dr
Cr
Factory Overhead
Actual
Overhead
Overhead Applied to
Costs
Work in
Process
McGraw-Hill/Irwin
Dr
Cr
Goods in Process
Direct
Material
Direct
Labor
Overhead
When
Actual
Applied
factory = factory
overhead
overhead
an adjustment is needed.
We will look at how to
accomplish this later.
/
Slide 27
Summary of Cost Flows
Now let’s
complete the
goods and sell
them.
McGraw-Hill/Irwin
Slide 28
Summary of Cost Flows
P3
Dr
Cr
Dr
Goods in Process
Direct
Material
Direct
Labor
Overhead
Cr
Finished Goods
Cost of
Goods
Mfd.
Cost of
Goods
Mfd.
Dr
Cost of
Goods
Sold
Cr
Cost of Goods Sold
Cost of
Goods
Sold
McGraw-Hill/Irwin
Slide 29
P4
OVERHEAD APPLICATION
Tell me again how
we use the POHR to
assign overhead
to jobs.
McGraw-Hill/Irwin
We multiply the POHR
times the number of
activity units (direct labor
cost for Road Warriors)
incurred for the job.
Slide 30
OVERHEAD APPLICATION
P4
Reasons for using a
predetermined overhead rate
Overhead is not
incurred uniformly
during the year.
Actual overhead rate
might vary from
month to month.
Predetermined rate
makes it possible to
estimate job costs sooner.
McGraw-Hill/Irwin
Slide 31
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
The POHR is based
on estimates.
What happens if
actual results differ
from the estimates?
McGraw-Hill/Irwin
The result will be either
underapplied or overapplied
overhead and we
will adjust Cost of Goods
Sold at the end of the period.
Here, let me show you.
Slide 32
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
Overhead is
overapplied.
Actual
overhead
costs
incurred
Overhead
applied to
Work in Process
(POHR × Activity)
McGraw-Hill/Irwin
Slide 33
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
Overhead is
underapplied.
Overhead
applied to
Work in Process
Actual
overhead
costs
incurred
McGraw-Hill/Irwin
(POHR × Activity)
Slide 34
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
Adjusting Cost of Goods Sold for
underapplied or overapplied overhead
Cost of Goods
Overhead is:
Sold is:
Adjustment will:
Actual overhead >
applied overhead
Underapplied
Too low
Increase Cost
of Goods Sold
Actual overhead <
applied overhead
Overapplied
Too high
Decrease Cost
of Goods Sold
McGraw-Hill/Irwin
Slide 35
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
Let’s look at summary accounting
journal entries for the job order
cost system at Road Warriors. The
dollar amounts are from Exhibit
19.12 in your textbook.
McGraw-Hill/Irwin
Slide 36
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
P1
Date
Description
Raw Materials Inventory
Debit
Credit
2,750
Accounts Payable
2,750
Acquired materials on credit for factory use.
Goods in Process Inventory
Raw Materials Inventory
1,800
1,800
To record use of material on Jobs
McGraw-Hill/Irwin
Slide 37
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
P1
P2
Date
Description
Factory Overhead
Debit
Credit
550
Raw Materials Inventory
550
To record use of indirect materials.
Factory Payroll
Cash
5,300
5,300
To record employee wages and salaries.
McGraw-Hill/Irwin
Slide 38
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
P2
Date
Description
Goods in Process
Debit
Credit
4,200
Factory Payroll
4,200
To assign costs of direct labor to jobs.
Factory Overhead
Factory Payroll
1,100
1,100
To record indirect labor costs as overhead.
McGraw-Hill/Irwin
Slide 39
P3
Date
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
Description
Factory Overhead
Debit
Credit
5,070
Cash (and other accounts)
5,070
To record factory overhead costs such as
insurance, utilities, rent, and depreciation.
Goods in Process Inventory
Factory Overhead
6,720
6,720
To apply factory overhead.
McGraw-Hill/Irwin
Slide 40
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
P3
Date
Description
Finished Goods Inventory
Debit
Credit
8,940
Goods in Process Inventory
8,940
To record completion of jobs.
Cost of Goods Sold
Finished Goods Inventory
5,580
5,580
To record the sale of jobs.
McGraw-Hill/Irwin
Slide 41
END OF CHAPTER 19
McGraw-Hill/Irwin
Slide 42
