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1. Perform job order cost accumulation.

2. Identify and prepare the eight basic cost accounting
entries involved in job order costing.
3. Prepare a job order cost sheet.
4. Use a predetermined overhead rate in job order
costing.
5. Recognize job order cost sheets in a variety of
forms, for both manufacturing and service
businesses.
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 In job order costing, or job costing, production
costs are accumulated for each separate job.
a job is the output identified to fill a certain
customer order or to replenish an item of
stock on hand..

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 Details about a job are recorded
on a job order cost sheet, or
simply cost sheet, which can be
in paper or electronic form.

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 1. Overview of Job Order
Costing.
 The basics of job order costing
involve only eight types of
accounting entries, one for each of
the following:

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 1. Materials purchased
2. Factory labor costs incurred
3. Factory overhead costs incurred
4. Materials used
5. Factory labor costs distributed
6. Estimated factory overhead applied
7. Jobs completed
8. Products sold
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 1. Overview of Job Order
Costing

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 (1)Materials Purchased

Cost accounting for purchased materials is

the same as it is for any perpetual inventory
system. As materials are received, the account
Materials is debited (rather than Purchases, in
a periodic inventory system).

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 2. Accounting for Materials.

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 (2)Materials Used

Direct materials for a job are issued to the

factory on the basis of materials requisitions,
which are documents prepared by production
schedulers or other personnel specifying the
job number and type and quantity of materials
required.

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 The details of overhead costs are also
posted to an overhead subsidiary record,
which may be a worksheet called a factory
overhead analysis sheet.

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 In many companies, a time clock registers
each employee on an individual clock card,
which may be on paper or in electronic form,
when the employee enters and leaves the
facility. Clock cards thus show the amount of
time worked and are used to compute earnings
of hourly wage earners.

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 To identify direct and indirect labor cost,
each worker prepares one or more labor time
tickets each day. Each labor time ticket is a
document showing the time spent by one
worker on a specific job order (direct labor)
or on any other task (indirect labor); any
labor not used in production is charged to
marketing or administrative expense
accounts.
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 Time tickets are costed and
summarized periodically, and
time ticket hours for each
employee are reconciled with
clock card hours.

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 (1)Factory Labor Cost Incurred
For each pay period, the liabilities for wages
and other payments are journalized and
posted to the general ledger. Regardless of the
number of liabilities recorded, the offsetting
debit will be made to Payroll, where labor cost
is accumulated temporarily until it is
distributed to the cost accounts, usually at
month-end.
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 (2)Factory Labor Costs Distributed

Most companies distribute labor costs monthly:

labor time tickets are sorted by job, entered on job
cost sheets, and recorded by summary general
journal entries. Time tickets are sorted and
entered on job cost sheets weekly, or even daily,
to cost products and bill customers promptly.
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 But because updated general ledger balances are
needed only at the end of a month or quarter when
financial statements are prepared, the general
journal entries are made monthly or quarterly in
summary form as shown. In some highly
automated systems, employees’ encoded
identification cards are scanned at the beginning
and end of their work on each job or other task,
and all records are updated instantly.
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 3. Accounting for Labor

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 Factory overhead consists of all costs that
are not traced directly to jobs but are
incurred in production (not marketing and
administration).

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 Instead, overhead costs are
broadly accumulated without
distinction as to job, and then
total overhead costs are allocated
among all jobs.

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 (1)Actual Factory Overhead Incurred

Some actual overhead costs, such as

indirect materials and indirect labor, are
recorded when they are incurred or by
periodic summary entries, as illustrated
previously.

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 (1)Actual Factory Overhead Incurred

Only four overhead costs have been

illustrated: indirect materials, indirect
labor, machinery depreciation, and
insurance.

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 (1)Estimated Factory Overhead Applied

A job’s prime costs are determined from

materials requisitions and time tickets.
Determining the amount of overhead to be
charged is more difficult. Some overhead
costs, such as rent and insurance, are fixed
regardless of the amount of production.
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 (1)Estimated Factory Overhead Applied

Others, such as power and lubricants, will

vary with the quantity of production. Overhead
costs such as major cleaning and remodeling
efforts are intermittent or seasonal; they
benefit all production but may be incurred
when some jobs are in production and not
incurred at all at other times.
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 The activity chosen is called the overhead
allocation base or simply the base. The base
chosen should be the one most closely related
to the costs being allocated; that is, the one
that appears to drive most of the factory
overhead.

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 To permit timely application of
overhead, a predetermined overhead
rate is used, which is the ratio of
estimated total overhead to the
estimated total of the overhead
allocation base.

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 The amount of overhead charged
to a job, called applied overhead,
is determined by multiplying $40
by the number of machine hours
used on that job.

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 4. Accounting for Factory
Overhead

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 5. Accounting for Jobs
Completed and Products Sold.

As jobs are completed, their cost sheets are

moved from the in-process category to a
finished work file. When a completed job is
intended to replenish stock on hand, the
quantity and cost are recorded on finished
goods record cards, which serve as a
subsidiary ledger supporting the finished
goods account.

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 A job for a specific
customer can be shipped
when completed and thus
never enter finished goods
inventory; Sales and Cost
of Goods Sold are recorded
when the job is transferred
from Work in Process.
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 When the purpose of a completed job is to
replenish the stock of a component used in
making other products, the cost of the
completed job is charged to Materials
rather than Finished Goods.

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 When stock on hand is shipped to customers,
the finished goods record cards are updated,
sales invoices prepared, and sales and the
cost of goods sold recorded, just as in any
perpetual inventory system.

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 5. Accounting for Jobs


 Completed and Products Sold

Finished goods…………XX
work in process…………….XX

Account receivable……….XX
Sales………………………...XX
Cost of goods sold……… XX
Work in process/ FG………XX.

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 In service businesses where jobs differ from
each other and cost information is desired for
individual jobs, several varieties of job order
costing are used.

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 These service businesses include tailors,
lawn service companies, temporary-help
companies, repair shops, and professional
services such as legal, medical,
architectural, engineering, accounting, and
consulting.

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 The only remaining items to be
charged to each job are the
directly traceable costs other
than labor.

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 Weekly or monthly summaries of
all costs are prepared and
entered on job cost sheets,
which may be called by any of
several names, depending on the
type of business.

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 Notice that there is no
separate category for
overhead, because the
predetermined overhead
cost rate is included in the
hourly charges for labor.

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