Job Order Cost
System
Module 5
ACG 2071
Created by M. Mari
Fall 2007-1
Cost Accounting Systems

Job order cost

Provides separate
record of the cost of
each quantity of the
product that passes
through the factory

Process cost system

Costs are accumulated
for each of the
department or
processes within the
factory
Job Order Accounting
A major aim is to determine the cost of
producing each job or job lot.
 Job sheet




Is a separate record maintained for each job
While a job is being manufactured, its
accumulated costs are kept in Goods in
Process Inventory
When job is finished , costs are transferred to
Finished Goods Inventory
Purchase of Materials
Date
Account
Raw materials inventory
Accounts payable
Debit
Credit
XX
XX
Example

Purchased $8,000
worth of materials for
use in production on
account
Date
Account
Raw materials inventory
Accounts payable
PR
Debit
Credit
$8,000
$8,000
Requisition of Materials
Date
Account
Debit
Work in process
Total direct
materials
used
Factory overhead
Total indirect
materials used
Materials inventory
Credit
Total materials
used
Example 2

Material usage is shown below, record the
material used
Job #
Materials
125
$4,500
126
$4,250
127
$4,000
128
$3,500
129
$3,000
Indirect
$2,000
TOTAL
$21,250
Example 2
Date
Account
Work in process
Factory overhead
Raw materials inventory
Debit
Credit
$19,250
2,000
$21,250
Factory Labor
Date
Account
PR
Debit
Good in process
Direct labor
Factory overhead
Indirect
labor
Wages payable
Credit
Total labor
costs
Example 3
To the right, you will find a
distribution of labor costs
between jobs. Please record the
labor used.
Job #
Labor
Direct
labor
hours
125
$5,000
200
126
$4,900
175
127
$4,500
150
128
$4,000
125
129
$3,500
100
Indirect
$1,500
TOTAL
$23,400
830
Example 3
Date
Account
Work in process
Factory overhead
Wages payable
Debit
Credit
$21,900
1,500
$23,400
Factory Overhead Costs
Date
Account
Factory overhead
Various accounts
PR
Debit
Credit
Total actual
overhead
costs
Total actual
overhead
costs
Allocating Factory Overhead


Cost allocation – the process of assigning factory
overhead costs to a cost object
Activity Base – measure used to allocate factory
overhead
Predetermined factory overhead rate =
Estimated total factory overhead costs
Estimated Activity Base
Examples

Example 4: The corporation estimates FO at $500,000
for the next period. The corporation uses direct labor
hours as its activity base and estimates 50,000 total
direct labor hours
Predetermined rate = Estimated FO Costs
Estimated activity base
= $500,000
50,000 DLH
= $10 per direct labor hour
So factory overhead is applied at rate of $10 for each
hour of direct labor charged to the job.
Examples

Factory overhead costs are $500,000 for the next
period. Factory overhead is determined as a
percentage of direct labor costs. If direct labor
costs is $750,000, what is the factory overhead
rate?
Predetermined rate = Est. Factory overhead
Est. Activity Base
= $500,000
$750,000
= 67%
Factory overhead is applied at a rate of 67% of direct labor
costs. For each dollar of direct labor charged to the job,
67 cents is charged to factory overhead.
Applying Factory Overhead

The factory overhead
account is applied
based on the
predetermined rate.
Date
Account
Work in process
Factory
overhead
PR
Debit
Credit
Total
factory
overhead
applied
Total factory
overhead
applied
Example 6
Below is the manufacturing information for Bunny. Factory
overhead rate is $50 per direct labor hour. Record the application
of factory overhead to the jobs listed below.
Job #
Mtrls
Labor
DL hr
125
4500
5000
230
126
4250
4900
175
127
4000
4500
150
128
3500
4000
125
129
3000
3500
100
Indirect
2000
1500
Totals
21250
23400
780
FO
Example 6
Job #
DLhr
FO
125
230
230 X $50 per direct labor hour = $11,500
126
175
175 x $50 = $8,750
127
150
150 x $50 = $7,500
128
125
125 x $50 = $6,250
129
100
100 x $50 = $5,000
Indirect
Totals
780
$39,000
Example 6
Date
Account
Goods in process
Factory overhead
PR
Debit
Credit
$39,000
$39,000
Example 7

Taxon Corporation applies factory overhead at the
rate of 75% of direct labor costs. Record the
application using the following information:
Job
#
Labor
Factory
125
126
$5000
$4900
$5,000 x 75% = $3,750
$4,900 X 75% = $3,675
127
$4500
$4,500 X 75% = $3,375
128
$4000
$4,000 X 75% = $3,000
129
$1500
$1,500 X 75% = $1,125
TOTAL
$14,925
Example
Dat
e
7
Account
Goods in process
Factory overhead
PR
Debit
Credit
$14,925
$14925
Factory Overhead
Factory Overhead Account
Debit
Actual factory
overhead costs
greater than
estimated and
applied factory
overhead costs
Credit
Actual factory
overhead costs less
than estimated and
applied factory
overhead costs
Disposal of Factory Overhead
Since Factory overhead is an EXPENSE account, it must be closed
at the end of the period.
The balance of the account is closed into COST OF GOODS SOLD
Date
Account
Cost of Goods Sold
Factory
overhead
P
Debit
Credit
Debit if
underapplied
by the balance
in the account
Credit if
overapplied by
the balance in
the account
Debit if
overapplied by
the balance in
the account
Credit if
underapplied
by the balance
in the account
R
Example
Example 7: The balance in the factory
overhead account is $50,000, the
corporation applies $60,000 to work in
process. Record the disposal of the
balance.
 The factory overhead account has a
credit balance of $10,000 after the
entry to apply factory overhead to
work in process.

Example
Factory overhead
Debit
Credit
$50,000
$60,000
Actual factory
overhead costs
Factory overhead
costs applied
$10,000 balance
Over-applied factory overhead
Date
Account
Debit
Factory overhead
$10,000
Cost of goods sold
Credit
$10,000
Example
Example 7: The balance in the factory
overhead account is $100,000, the
corporation applies $95,000 to work in
process. Record the disposal of the
balance.
 The factory overhead account has a
debit balance of $5,000 after the
entry to apply factory overhead to
work in process.

Example
Factory overhead
Debit
Credit
$100,000
$95,000
Actual factory
overhead costs
Factory overhead
costs applied
$5,000 balance
Under-applied factory overhead
Date
Account
Cost of goods sold
Factory overhead
Debit
Credit
$5,000
$5,000
Transfer of Finished Goods
Date
Account
Finished goods
Work in process
Debit
Credit
Total
manufacturing
costs
Total
manufacturing
costs
Example 9:
Suppose that jobs 125, 126, and 127 are completed. Record
their transfer to finished goods inventory.
Job
Mtrl
Labor
FO
Total
125
$4500
$5000
$6900
$16400
126
$4250
$4900
$5250
$14400
127
$000
$4500
$4500
$13000
Total
$43,800
Transfer to Finished Goods
Dat
e
Account
Finished goods inventory
Goods in process
PR
Debit
Credit
$43,800
$43,800
The jobs are kept in Finished Goods Inventory until they are sold to
the customer.
Then they are transferred to Cost of Goods Sold
Transferred to COGS
Date
Account
Cost of goods sold
Finished goods
PR
Debit
Credit
Total cost
Total costs
Example

Using the information in example 7 above,
assume that jobs 125 which costs $16,400 to
manufacture has been sold for $75,000 on
account. Record the entry.
Date
Account
Accounts receivable
PR
Debit
$75,000
Sales
Cost of goods sold
Finished goods
Credit
$75,000
$16,400
$16,400