Cost accounting Job order costing

Job order costing
Job-order costing system allocates costs to groups of unique products that
is applicable to the production of customer specified products.
 It collects all manufacturing costs and assigns them to specific job
or batches of product.
 It measures costs for each completed job rather than for set time
periods.
 It used just one work in process inventory control account in the
general ledger.
Accounting for materials
Procedures affecting accounting for materials involve the following:
 Purchasing of materials and supplies
 Issuance of direct materials
 Issuance of indirect materials and supplies
Recording the purchase of materials
The account debited when materials and supplies are purchased under the
Perpetual system is Materials (Purchases for Periodic) and the account
credited is Accounts payable. The entry to record the purchase of materials
and supplies is:
Materials 000
Accounts payable 000
To record purchase of materials and supplies
As materials are received, the individual items are entered on the materials
ledger or materials stock card showing quantity, unit cost and total
amount.
Recording the issuance of materials
When a job is started, the materials and supplies needed for the job are
issued based on the bill of materials. The department in need of materials
and supplies shall prepare a materials requisition slip. The warehouse
department upon releasing the materials and supplies shall prepare the
materials issuance slip. At the same time, the materials ledger or materials
stock card is updated.
The entry to record the issuance of direct materials is:
Work in process 000
Materials 000
To record issuance of direct materials
The entry to record the issuance of indirect materials and supplies is:
Factory overhead control 000
Materials 000
To record issuance of indirect materials and supplies
There are cases when materials are returned by the company to the
vendor, seller or supplier in the form of purchase returns. An entry to
record the materials to vendor representing purchase returns is:
Accounts payable 000
Materials 000
To record return of materials to vendor
Sometimes, there are excess materials from the factory that must be
returned to warehouse. The entry to record the return is:

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Cost accounting Job order costing

Materials 000 Forms used in accounting for labor

Work in process 000
To record return of direct materials to warehouse Time card shows an employee reports for work and goes out and it is used
in payroll preparation. It is used together with the company’s Bundy clock.
Materials 000
Factory overhead control 000 Time ticket or job ticket shows the number of hours a worker devoted to a
To record return of indirect materials and supplies to certain job that serves as a primary basis in making charges to direct labor
warehouse cost of the jobs worked on. The number of time tickets shall be equal to the
number of jobs each worker accomplishes.
The balance of the materials account appearing in the ledger represents
the balance of the Materials Inventory at end of the period. This amount Daily time report shows how a worker spends the number of hours of time
must also be equal to the total amount of each materials ledger or in for a day. The daily time report may be a summary of the time ticket or
materials stock card. job ticket or each employee on a daily basis.

Materials Payroll sheet shows the computation of the all the employees’ basic pay,
 Beginning inventory  Direct materials, indirect overtime pay, gross pay, deductions and net pay.
 Purchase of direct materials, materials and supplies issued
indirect materials and supplies  Direct materials, indirect Employees’ earnings record summarizes the periodic and accumulated
 Freight-in materials and supplies earnings of each employee to include all the employees’ basic pay,
 Direct materials, indirect returned to supplier overtime pay, gross pay, deductions and net pay for every cut off or payroll
materials and supplies period.
returned to warehouse
Alpabetical list of employees is a requirement by the Bureau of Internal
Accounting for labor Revenue to include all the compensation paid by the company to existing
and resigned employees as well as the amount of tax deductions made for
The accounting procedures for labor may be divided into two distinct the calendar year.
phases:
The following are the entries to record transactions involving payroll:
 Collection of labor data, computation of earnings, calculation of
payroll deductions and taxes and payment of wages. Payroll 000
Withholding tax payable 000
SSS payable 000
 Distribution and allocation of labor costs to jobs, departments, and
PHIC payable 000
other cost classifications.
HDMF payable 000
Accrued payroll payable 000
To record payroll cost

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Cost accounting Job order costing

Cash 000
SSS expense 000 To record actual cost of factory overhead
PHIC expense 000 Applied factory overhead is recorded as follows:
HDMF expense 000
SSS payable 000 Work in process 000
PHIC payable 000 Applied factory overhead 000
HDMF payable 000 To record factory overhead applied
Accrued payroll payable 000
To record employer’s share in contributions The balance of the actual factory overhead may be different from the
balance of the applied factory overhead due to the following:
Work in process 000
Factory overhead control 000  Difference between budgeted and actual costs and
Payroll 000
To record distribution of payroll  Difference in the activity level chosen to compute the
predetermined OH rate and the actual activity level experienced.
Accrued payroll payable 000
Cash 000 As such the difference or the variance is either under-applied or over-
To record payment of payroll applied:

The employer’s share in contributions is shown in the financial statements  Under-applied overhead means that the overhead applied to WIP
as follows: Inventory is less than the actual overhead incurred.

 Factory overhead control – contributions for direct and indirect  Over-applied overhead means that the overhead applied to WIP
labor Inventory is more than actual overhead incurred.

 Salaries, wages and contributions – contributions for selling and The difference between actual factory overhead and applied factory
administration payroll overhead is closed to cost of goods sold if not material:

Accounting for factory overhead Applied factory overhead 000

Cost of goods sold 000
Actual factory overhead is recorded as follows: Actual factory overhead 000
To close under applied factory overhead
Factory overhead control 000
Depreciation expense 000 Applied factory overhead 000
Prepaid expense 000 Actual factory overhead 000
Accrued expense payable 000 Cost of goods sold 000

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Cost accounting Job order costing

To close over applied factory overhead

The balance of the work in process at the end of the period represents the
If the difference between actual factory overhead and applied factory amount of jobs remaining, jobs not yet completed, or jobs not yet finished.
overhead is considered as materials, it shall be closed based on the relative At the end of the process, the work in process ledger account consists of
proportion to Work in process, Finished goods, and Cost of goods sold: the following:

Applied factory overhead 000 Work in process

Work in process 000  Beginning inventory  Cost direct materials, direct
Finished goods 000  Cost of direct materials issued labor and factory overhead
Cost of goods sold 000 to production transferred to finished goods
Actual factory overhead 000  Cost of direct labor applied to  Cost of direct materials,
To close under applied factory overhead production indirect materials and supplies
 Cost of factory overhead returned to warehouse
Applied factory overhead 000 applied to production
Actual factory overhead 000
Work in process 000 The balance of the finished goods ledger will be as follows:
Finished goods 000
Cost of goods sold 000 Finished goods
To close over applied factory overhead  Beginning inventory  Cost of units sold
 Cost direct materials, direct
Work in process, cost of goods sold and finished goods labor and factory overhead
transferred from work in
When a particular job is finished, the total cost associated with the job it process
transferred to finished goods as follows:

Finished goods 000 The balance of the cost of goods sold ledger will show the following:
Work in process 000
To record the cost of the jobs finished or jobs transferred to Finished goods
finished goods
 Beginning inventory  Cost of units sold
 Cost of units sold  Adjustment for over-applied
When the units are sold the cost of goods sold representing the cost of the
 Adjustment for under-applied factory overhead
units finished is debited:
factory overhead
Cost of goods sold
Finished goods
To record cost of goods sold

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