Financial and Managerial
Accounting
Wild, Shaw, and Chiappetta
Fifth Edition
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 15
Job Order Costing
and Analysis
Conceptual Learning Objectives
C1: Describe important features of job
order production.
C2: Explain job cost sheets and how they
are used in job order cost
accounting.
15-3
Analytical Learning Objectives
A1: Apply job order costing in pricing
services.
15-4
Procedural Learning Objectives
P1: Describe and record the flow of materials
costs in job order cost accounting.
P2: Describe and record the flow of labor costs
in job order cost accounting.
P3: Describe and record the flow of overhead
costs in job order cost accounting.
P4: Determine adjustments for overapplied and
underapplied factory overhead.
15-5
C1
Job Order Production
Process
Costing
Job
Costing
Chapter 16

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.
15-6
C1
Job Order Manufacturing
Process
Costing
Job
Costing
Chapter 16
Typical job order cost applications:
 Special-order printing
 Building construction
Also used in service industry
 Hospitals
 Law firms
15-7
C1
Events in Job Order Costing
Receive order
from
customers
Predict cost
to complete
job
Schedule the
production of job
Negotiate a sales price
and decide whether to
pursue the job.
15-8
Job Order Production
Activities
C1
Indirect
Materials
Direct
Indirect
Factory Allocate
Overhead
Labor
Direct
Goods in
Process
Inventory
Finished
Goods Inventory
(Balance Sheet)
Cost of Goods Sold
(Income Statement)
15-9
C2
Job Cost Sheet
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 3/15/13 Date started 3/3/13
Date completed
Direct Materials
Date
Req.
Cost
Total
Direct Labor
Date
Ticket
Cost
Total
Remarks
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
15-10
P1
Materials Requisition
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date
3-7-13
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
1
M. Bateman
Requested By
C. Luther
Date Provided
3-7-13
Received By
C. Luther
Remarks
15-11
P1
Materials Ledger Card
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
3/4/13 C7117 2
$225 $450
3
$225 $675
3/7/13
R4705 1 $225 $225
2
$225 $450
15-12
P1
Job Cost Sheet
(Materials used)
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 3/15/13 Date started 3/3/13
Date completed
Direct Materials
Date
Req.
Cost
3/7/13 R4705
$225
Total
$225
Remarks
Direct Labor
Date
Ticket
Cost
Total
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$225
15-13
P2
Job Cost Sheet
(Direct Labor used)
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 3/15/13 Date started 3/3/13
Date completed
costs by
Direct Materials
Date
Req.
Cost
3/7/13 R4705
$225
Total
$225
Remarks
Direct Labor
Date
Ticket
Cost
Total
Factorymeans
Overheadof
Date
Rate
Cost
Total
a
work record,
such as a time
ticket, for each
employee.
Cost Summary
Direct Materials
Direct Labor
Let’s
Factory Overhead
Total Cost
$225
see one
15-14
P2
Labor Time Ticket
Road Warriors Time Ticket No. L-3479
Job No.
B15
Date
Employee Name T. Zeller
3/8/13
Employee Number
3969
TIME AND RATE INFORMATION:
Start Time
9:00
Elapsed Time
3.0
Approved By
C. Luther
Finish Time
12:00
Hourly Rate
$20.00
Total Cost
$60.00
Remarks
15-15
P2
Job Cost Sheet
(Direct Labor Cost)
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 3/15/13 Dated started 3/3/13
Date completed
Direct Materials
Date
Req.
Cost
3/7/13 R4705
$225
Total
$225
Remarks
Direct Labor
Date
Ticket
Cost
3/8/13 L3479
$60
Total
$60
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$225
60
15-16
P3
Job Cost Sheet
(Factory Overhead)
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 3/15/13 Date started 3/3/13
Date completed
Direct Materials
Date
Req.
Cost
3/7/13 R4705
$225
Total
$225
Direct Labor
Date
Ticket
Cost
3/8/13 L3479
$60
Total
Factory Overhead
Date
Rate
Cost
Total
Allocate
manufacturing overhead
to jobs using
Remarks
Cost Summary
a predetermined
rate
Direct overhead
Materials
$225
Direct Labor
Factory Overhead
Total Cost
60
Let’s do it
15-17
P3
Job Cost Sheet
(Factory Overhead)
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Malibu, California
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/13 Date started 3/3/13
Date completed 3/11/13
Direct Materials
Date
Req.
Cost
3/3/13 R4698
$100
3/7/13 R4705
$225
…cont
Total
$600
Remarks
Direct Labor
Date
Ticket
Cost
3/3/13 L3393
$120
3/4/13 L3422
$150
…cont
Total
$1,000
Factory Overhead
Date
Rate
Cost
3/11/13
160% $1,600
of DL
cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$600
1,000
1,600
3,200
15-18
P3
Predetermined Overhead
Allocation Rate Formula
Road Warriors uses a predetermined
overhead rate (POHR) based on direct
labor cost to apply overhead to jobs.
POHR =
POHR =
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 $
15-19
P1
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.
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
15-20
P3
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.
JobCost
Cost
Job
Job
Cost
Sheets
Job
Cost
Sheets
Sheets
Sheets
Factory
Overhead
Account
15-21
P3
Summary of Cost Flows
Dr
Cr
Raw Materials
Material
Purchases Direct
Material
Indirect
Material
Dr
Cr
Goods in Process
Direct
Material
Dr
Cr
Factory Overhead
Actual
Overhead
Costs
15-22
P4
Summary of Cost Flows
Underapplied or Overapplied Overhead
Factory Payroll
Incurred
Direct
Labor
Indirect
Labor
Factory Overhead
Actual
Overhead
Overhead Applied to
Costs
Work in
Process
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.
/
15-23
P4
Summary of Cost Flows
Goods in Process
Direct
Material
Direct
Labor
Overhead
Cost of
Goods
Mfd.
Finished Goods
Cost of
Goods
Mfd.
Cost of
Goods
Sold
Cost of Goods Sold
Cost of
Goods
Sold
15-24
P4
Overhead Application
Tell me again how
we use the *POHR to
assign overhead
to jobs.
We multiply the *POHR
times the number of
activity units (direct labor
cost for Road Warriors)
incurred for the job.
*POHR = Predetermined
Overhead Rate
15-25
P4
Overhead Application
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.
15-26
P4
Adjusting of Overapplied or
Underapplied Overhead
The *POHR is based
on estimates.
What happens if
actual results differ
from the estimates?
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.
*POHR = Predetermined
Overhead Rate
15-27
P4
Adjusting of Overapplied and
Underapplied Overhead
Overhead is
overapplied.
Actual
overhead
costs
incurred
Overhead
applied to
Work in Process
(POHR × Activity)
15-28
P4
Adjusting of Overapplied and
Underapplied Overhead
Overhead is
underapplied.
Overhead
applied to
Work in Process
Actual
overhead
costs
incurred
(POHR × Activity)
15-29
P4
Adjusting of Overapplied and
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
(Dr. Balance)
Too low
Debit to COGS
(Credit FOH)
Actual overhead <
applied overhead
Overapplied
(Cr. Balance)
Too high
Debit to FOH
(Credit to COGS)
15-30
P1
Job Order Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Raw Materials Inventory
Accounts Payable
Page 21
Post.
Ref.
Debit
Credit
XXXXX
XXXXX
Acquired materials on credit for
factory use.
15-31
P1
Job Order Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Page 21
Post.
Ref.
Goods in Process Inventory
Debit
Credit
XXXXX
Raw Materials Inventory
XXXXX
To assign costs of direct materials used.
Factory Overhead
Raw Materials Inventory
XXXXX
XXXXX
To record use of indirect materials.
15-32
P2
Job Order Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Page 21
Post.
Ref.
Factory Payroll
Cash (and other accounts)
Debit
Credit
XXXXX
XXXXX
To record salaries and wages of factory
workers (including various payroll
liabilities).
15-33
P2
Job Order Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Goods in Process Inventory
Page 21
Post.
Ref.
Debit
Credit
XXXXX
Factory Payroll
XXXXX
To assign costs of direct labor used.
Factory Overhead
Factory Payroll
XXXXX
XXXXX
To record indirect labor as overhead.
15-34
P3
Job Order Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Factory Overhead
Page 21
Post.
Ref.
Debit
Credit
XXXXX
Prepaid Insurance
XXXXX
Utilities Payable
XXXXX
Raw Materials Inventory
XXXXX
Accumulated Depreciation
XXXXX
To record factory overhead costs.
15-35
P3
Job Order Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Goods in Process Inventory
Factory Overhead
Page 21
Post.
Ref.
Debit
Credit
XXXXX
XXXXX
To apply overhead using a
predetermined overhead rate.
15-36
Job Order Costing
Typical Accounting Entries
P3
GENERAL JOURNAL
Date
Description
Finished Goods Inventory
Goods in Process Inventory
Page 21
Post.
Ref.
Debit
Credit
XXXXX
XXXXX
To record completion of jobs.
15-37
P3
Job Order Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Cost of Goods Sold
Finished Goods Inventory
Page 21
Post.
Ref.
Debit
Credit
XXXXX
XXXXX
To record the sale of goods.
15-38
A1
Apply Job Order Costing to
Pricing Services
Estimate the cost of any
supplies
(shampoo/conditioner)
Estimate the cost of the
labor (stylist’s rate X time
of service)
A typical haircut
Estimate the amount of
overhead to be allocated
to all customers
Add a markup
15-39
End of Chapter 15
15-40