Cost Accounting

Foundations and Evolutions

Kinney, Prather, Raiborn

Chapter 4
Job Order Costing

Learning Objectives (1 of 3)
Contrast the job order and process costing
systems and their valuation methods
Define what the term job means
Explain the purpose of the documents used
in a job order costing system

Learning Objectives (2 of 3)
List the journal entries used to accumulate
costs in a job order costing system
Identify how technology impacts the
gathering and use of information in job
order costing systems

Learning Objectives (3of 3)

Explain how standard costs are used in a
job order costing system
Describe how job order costing information
supports management decision making
Explain how losses are treated in a job
order costing system

Job Order or Process Costing

Job Order
Small quantities
Batches of
identifiable,
tailor-made
products
User-specific
services
Tracks costs by
job

Job Order or Process Costing

Job Order
Small quantities
Batches of
identifiable,
tailor-made
products
User-specific
services
Tracks costs by
job

Process
Large quantities
Homogeneous
goods
Tracks costs by
batch of goods by
department

Job Order Costing

A job is a single unit or group of units
identifiable as being produced to distinct
customer specifications
A job can be a

Client
Engagement
Project
Contract

Costing Systems
Job order costing

Process costing

COLA

Product Costing
Cost identification
Cost measurement
Product cost assignment

Methods of Product Costing

Cost Accumulation 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

Standard
Standard direct material
Standard direct labor
Standard overhead

Normal
Actual direct material
Actual direct labor
Predetermined overhead

The
Difference

Job Order Costing System

Each job is a cost object
Costs are accumulated for each job
A job can consist of one or more units of
output
There is a subsidiary ledger for each job

Job Order Costing System

WIP Subsidiary Ledger
Job 1

100

Job 2

Job 3

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

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

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

Employee Time Sheet

Time worked on each job
Journal entry
Work in Process Inventory (direct labor)
Manufacturing 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

Supervisors Signature

Manufacturing Overhead
Overhead Account
Actual Overhead

Applied Overhead

Journal Entry
Work in Process Inventory
Manufacturing Overhead (applied)

Completion of a Job
Move job cost sheet from WIP
subsidiary to Finished Goods subsidiary

Completion of a Job
Move job cost sheet from WIP
subsidiary to Finished Goods subsidiary
Journal entry
Finished Goods Inventory
Work in Process Inventory

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

Product and Material Losses

Shrinkage
Evaporation
Leakage
Oxidation

Production errors
Defects can be economically reworked
Spoilage cannot be economically reworked

Product and Material Losses

Normal Loss expected during production
Abnormal Loss exceeds that expected
during production

Normal Loss
Anticipated on all jobs
Include cost when calculating predetermined
overhead application rate
Include cost less the estimated disposal value

Specific to a job
Applied to the specific job
Include cost less the estimated disposal value

Abnormal Spoilage
Period cost includes cost of abnormal loss
less any disposal value

Product and Material Losses

Normal
Loss
Loss for
most jobs
Loss identified
with a
specific job

Abnormal
Loss

In overhead
rate

Period cost

Charge to
specific job

Period cost

Questions
What is the difference between job order
and process costing systems?
How do actual, normal, and standard
costing valuation methods differ?
How is the job order cost sheet used?