INTRODUCTION TO THE JOB ORDER COST

CYCLE – NORMAL COSTING

Kathrina Joy A. David

Accounting Instructor
Acctng 106 Cost Accounting
 WORKFLOW

1. Procurement – materials and supplies needed for manufacturing are ordered, received and stored. Direct
and indirect factory labor and services are obtained.
2. Production – materials are transferred from the storeroom to the factory. Labor tools, machines, power and
other costs are applied to complete the product.
3. Warehousing – finished goods are moved from the factory to the warehouse to be held until they are sold.
4. Selling – customers are found. Merchandise is shipped from the warehouse. Sales to customer are
recorded.
 RECORDING OF COST INCURRED

1. Procurement – accounts must be provided to record the purchase of materials, labor and overhead –
General Ledger Account are – Materials, Payroll and Manufacturing Overhead
2. Production – an account is required to gather procurements costs as they become chargeable to
manufacturing operations. – General Ledger account is Work in Process
3. Warehousing – an account must be set up to record the cost of goods that have completed manufacturing
process. – GL – Finished Goods
4. Selling – cost of completed goods that have been sold are recorded on Cost of goods sold account.
 MATCHING COST FLOW AND WORK
FLOW

1. Procurement – purchases of materials, labor and overhead are recorded as

Account Debit Credit

Materials xxx
Payroll xxx
Factory Overhead xxx
Cash/Payable xxx
 MATCHING COST FLOW AND WORK
FLOW

2. Production – cost of materials, labor and overhead are debited to Work in

process account
Account Debit Credit
Work in process xxx
Materials xxx
Labor xxx
Factory Overhead xxx
 MATCHING COST FLOW AND WORK
FLOW

3. Warehousing – cost of finished goods are transferred from Work In Process

account to Finished goods inventory

Account Debit Credit

Finished goods Xxx
Work in process xxx
 MATCHING COST FLOW AND WORK
FLOW

4. Selling – when finished goods are sold they are debited to Cost of Goods Sold.

Account Debit Credit

Cost of goods sold xxx
Finished Goods xxx
 ILLUSTRATIVE PROBLEM

JenJen Printers, Inc., is using job order cost accounting system for some time.
Assume that on June 1 these balances appear in the following accounts

Account No. Account Name Amount

121 Materials P50,000
122 Work in Process 40,000
126 Finished Goods 30,000
 RAW MATERIALS PURCHASED

Additional raw materials were purchased during the month of June at a cost of
P86,900 on account.

Account name Debit Credit

Materials P86,900
Accounts Payable P86,900
 RAW MATERIALS USED

During the month, raw materials costing P90,400 were used as follows.
Account Amount
Direct Materials, chargeable to Work in P84,600
process
Indirect Materials, chargeable to 5,800
Manufacturing Overhead Control

Entry will be

Account name Debit Credit

Work in Process P84,600
Manufacturing Overhead Control 5,800
Materials 90,400
 FACTORY WAGES EARNED

During the month, wages and salaries totaling P102,300 were earned by the
factory employees

Account Debit Credit

Payroll 102,300
Withholding Taxes Payable 1,300
SSS Contribution Payable 200
Pag-ibig Contribution Payable 300
Salaries and Wages Payable 100,500
 LABOR CHARGED TO PRODUCTION

An analysis of the records indicates that labor costs of P102,300 should be allocated as follows:
Account
Direct Labor, chargeable to work in process P66,500
Indirect Labor, chargeable to Manufacturing Overhead Control 35,800

Entry will be:

Account Debit Credit

Work in Process P66,500
Manufacturing Overhead Control 35,800
Payroll 102,300
 MANUFACTURING OVERHEAD COSTS

In addition to indirect materials and indirect labor, other manufacturing overhead cost such as insurance,
utilities and depreciation, totaling P23,500 were incurred during the month.
Account Debit Credit
Manufacturing Overhead Control P23,500
Payable and other accounts 23,500
MANUFACTURING OVERHEAD APPLIED TO
PRODUCTS

It is estimated that 80 percent of the direct labor cost is chargeable to jobs worked
on during the month of June. An estimate of overhead applicable to each job must
be made because it is impossible to determine the exact amount applicable at this
point.

Account Debit Credit

Work in process P53,200
Manufacturing Overhead Applied (P66,500 * 80%) 53,200
 TRANSFER OF FINISHED GOODS

During the month, some jobs were completed and transferred to the finished
goods warehouse. These jobs cost P225,100.

Account Debit Credit

Finished Goods P225,100
Work in Process 225,100
 SALE OF FINISHED GOODS

During the month, finished goods costing P221,500 were sold to various
customers.
Account Debit Credit
Cost of goods sold P221,500
Finished goods P221,500
COMPUTATION OF MANUFACTURING OVERHEAD

Manufacturing Overhead Control:

Indirect Materials 5,800
Indirect Labor 35,800
Other Manufacturing Overhead 23,500
Total 65,100
Manufacturing Overhead Applied 53,200
Underapplied Manufacturing Overhead 11,900

Account Debit Credit

Manufacturing Overhead Applied P53,200
Underapplied Manufacturing Overhead 11,900
Manufacturing Overhead Control 65,100
 ADJUSTMENT TO COST OF GOODS SOLD

Adjusting the underapplied manufacturing overhead as follows:

Account Debit Credit

Cost of goods sold P11,900
Underapplied Manufacturing Overhead 11,900
STATEMENT OF COST OF GOODS FOR MANUFACTURING COMPANY
Direct Materials used
Materials inventory, beg xx
Add: Purchases xx
Total available for use xx
Less: Materials inventory, end xx xxx
Direct Labor (DL) xxx
Factory Overhead (FOH) xxx
Total Manufacturing Cost (TMC) xxx
Work in process inventory, Jan 1, 2020 (WIP) xxx
Cost of goods put into process (COGP) xxx
Less: Work in process inventory, Dec 31, 2020 xxx
Cost of goods manufactured (COGM) xxx
Finished Goods Inventory, Jan 1, 2020 (FG) xxx
Total goods available for sale (TGAS) xxx
Less: Finished Goods Inventory, Dec 31, 2020 xxx
Costs of goods sold (COGS) - normal xxx
Add: Under-applied manufacturing overheadxxx
Cost of goods sold – actual xxx