COST ACCOUNTING AND CONTROL  job order costing assists managers in their planning,

controlling, decision-making, and performance evaluating

JOB ORDER COSTING SYSTEM functions
 job order costing allows managers to trace costs associated
Characteristics: with specific current jobs to better estimated costs for future
1) costs are accumulated by job, which is a single unit or jobs
multiple similar or dissimilar units that has or have been  job order costing provides a means by which managers can
produced to distinct customer specifications better control the costs associated with current production,
2) cost of different jobs cannot logically be averaged; a unit especially if comparisons with budgets or standards are used
cost must be determined for each job  job order costing allows costs to be fathered correctly for
3) custom manufacturers typically price their goods using jobs that are contracted on a cost-plus basis
either a cost-plus contract or competitive bidding  job order costing highlights those jobs or types of jobs that
4) job order costing modules are included in most basic are most profitable to the organization
accounting software packages
5) operational and financial data about jobs are often Losses in a Job Order Costing System
disseminated throughout a form over company intranet  defective production can be economically reworked;
spoilage cannot be economically reworked
Job Order Costing Documents  both normal and abnormal losses may occur in a job order
1) job order cost sheet system
- contains all financial information about a particular job - normal losses that are generally anticipated on all jobs
- cost sheets for incomplete jobs serve as the Work in are estimated and included in the development of the
Process Inventory subsidiary ledger predetermined overhead rate
- cost sheets for completed jobs not yet delivered to - normal losses that are associated with a particular job
customers constitute the Finished Good Inventory are charged (net of any disposal value) to that job
subsidiary ledger - abnormal losses are charged to a loss account in the
- cost sheets for completed and sold jobs comprise the period in which they are incurred
Cost of Goods Sold subsidiary ledger
2) material requisition forms Basic Journal Entries in a Job Order Costing System
- trace the issuance of raw material to the specific jobs in
WIP inventory so that direct material can be included Raw Materials Inventory xx
on the job order cost sheets Accounts Payable xx
3) employee time sheets To record the purchase of raw materials
- record the hours worked and jobs associated with work Work in Process Inventory – Job # X
by employees so that direct labor cost can be included Manufacturing Overhead Control x
on the job order cost sheets Raw Materials Inventory xx xx
To record the issuance of direct and
Accumulating Costs in Job Order Costing indirect material requisitioned for a specific job
1) job order and direct labor costs are included on the job order Work in Process Inventory – Job # xx
cost sheet Manufacturing Overhead Control xx
2) indirect materials and indirect labor are included with other Wages Payable xx
actual overhead costs in one or more Overhead Control To record direct and indirect labor payroll
accounts for production
3) overhead is applied using predetermined overhead rates to Manufacturing Overhead Control xx
jobs at completion or the end of the period, whichever is Various Accounts xx
earlier To record the incurrence of actual
4) jobs and their related costs are transferred between overhead costs. (account titles to be credited
departments or, if completed, to Finished Goods Inventory must be specified)
5) goods are delivered to the requesting customers for cash or Work in Process Inventory – Job # xx
credit; the cost of those goods are removed from Finished Manufacturing Overhead Control xx
Goods Inventory and expensed to Cost of Goods Sold To apply overhead to a specific job. (this
may be actual OH or OH applied using a
Standard Costs in Job Order Costing predetermined rate which is applied at job
 standards can be established for quantities and/or costs of completion or end of period, whichever is earlier)
production inputs Finished Goods Inventory – Job # xx
 comparisons between actual and standard costs provide a Work in Process Inventory xx
basis for managers to evaluate the efficiency of operations To transfer completed goods to FG
 analysis of variances can provide managers an inventory.
understanding of the factors that cause costs to differ from Accounts Receivable xx
the expected amounts Sales xx
To record the sale of goods on account.
Job Order Costing and Management Decision-Making Cost of Goods Sold xx
Finished Goods Inventory xx
 To record CGS
Job Order Process
Exercise: Used in companies that Used in companies that
make limited quantities of make mass quantities of
A company with two departments, Fabrication and Assembly, customer-specified products homogeneous output on a
builds buildings per client’s specification. In March, 2019, the or perform customer-specific continuous flow or batch
company obtained contracts for three buildings: services basis
Job # 1 – storage building Requires the use of job order Accounts for DM, DL, and
Job # 2 – utility building cost sheet to track the DM, actual or applied OH by
Job # 3 – classroom DL, and actual or applied batch of goods per
The company bills its customers on a cost-plus basis, with OH to each customer- department
profit set equal to 25 percent of costs. The firm used job order specific job
costing system based on normal costs. Overhead is applied in Does not allow for the Can and creates a cost per
fabrication at a predetermined rate of P100 per machine hour computation of a cost per unit for each cost element
(MH). In the assembly department, overhead is applied at a unit unless all units within
predetermined rate of P10 per direct labor hour (DLH). the job are similar
The following significant transactions occurred in March: May use an actual cost May use the same type of
1) Direct material was purchased on account, P80,000. system, a normal cost cost valuation systems but
2) Direct material was issued to fabrication department for use system, or a standard cost standard cost systems are
in the three jobs: Job # 1, P8,000; Job # 2, P14,000; and Job system significantly more prevalent
# 3, P45,000. Direct material was issued to assembly
department: Job # 1, P500; Job # 2, P1,200; and Job # 3, Three Primary Valuation Systems:
P6,600. 1) actual cost system
3) Time sheets and payroll summaries indicated that the - combines actual DM, DL and OH
following labor costs were incurred: 2) normal cost system
Fabrication Assembly - combines actual DM and DL with applied OH (that
Job # 1. P1,000 P2,400 uses predetermined OH rate)
Job # 2 3,000 3,500 3) standard cost system
Job # 3 5,000 9,500 - combine budgeted norms for DM, DL and OH
4) The following indirect costs were incurred in each
department: Equivalent Units of Production (EUP)
Fabrication Assembly - approximate the number of whole units of output that could
Labor. P4,200 P4,500 have been produced during a period from the actual effort
Utilities/Fuel 5,900 2,300 expended during that period
Depreciation 10,300 3,600 - assign production costs for DM, DL, and OH to complete
The labor and utilities/fuel costs were accrued at the time of and incomplete output of the period; a separate EUP
the journal entry. calculation is required for each cost component that is at a
5) Overhead for the month was applied based on the different percentage of completion in the production process
predetermined rates in effect in each department. The
fabrication department had 200 MHs (20 on Job # 1; 35 on Weighted Average Method
Job # 2; and 145 on Job # 3). Assembly worked 950 DLHs - combines the beginning WIP inventory and current period
(40 on Job # 1; 110 on Job # 2; and 800 on Job # 3). production activity and costs
6) Job # 1 was completed and sold for cash in the amount of - determines
the cost-plus contract. At month-end, Jobs #2 and #3 were a) EUP (by cost component) by adding the physical units
only partially complete. in beginning WIP, physical units started and completed
7) Any underapplied or overapplied overhead at month-end is during the period, and equivalent units in the ending
considered immaterial and is assigned to Cost of Goods WIP inventory
Sold. b) average unit cost (per cost component) by dividing total
cost (equal to beginning-of-the-period costs plus
Required: current period costs) by EUP
a) journal entries c) transferred out value by multiplying total units
b) at the end of March, determine the total cost assigned transferred out by total average cost per EUP
for Jobs #2 and #3. d) ending WIP inventory value by multiplying the EUP
for each cost component by the related cost per EUP

PROCESS COSTING SYSTEM First-In, First-Out (FIFO) Method

- does not commingle beginning WIP inventory and current
- the system used to manufacture products in a continuous period production activity or costs
flow process or in batches of output containing units that are - determines
all basically identical a) EUP (by cost component) by the equivalent units in
beginning WIP inventory that were completed during
Job Order vs. Process Costing: Valuation Systems the current period, physical units started and
 completed during the period, and equivalent units in Units transferred in 8,650
ending WIP inventory Ending WIP inventory (100% complete for
b) average unit cost (per cost component) by dividing transferred in ; 30% complete for DM; 65% 200
current period cost by EUP complete for conversion)
c) transferred out value by adding the cost of beginning
WIP inventory, current period cost needed to complete Costs
beginning WIP inventory, and cost of units started and Trans-in DM CC
completed in the current period Beg. WIPI P 2,176 P 30 P 95
d) ending WIP inventory value by multiplying the EUP Current Period 188,570 15,471 21,600
for each cost component by the related cost per EUP Total P190,746 P15,501 P21,695
Standard Costs in Process Costing Required:
- standards assign a “normal” production cost to EUP each a) Cost of Production Reports for both Assembly and
period Finishing Departments
- standards allow managers to quickly recognize and
investigate significant deviations from expected production
b) Journal entries for the Finishing department
costs

Hybrid Costing
- combines the characteristics of both job order and process
costing systems
- traces DM and/or DL that is related to a particular batch of
goods to those specific goods using job order costing
- uses process costing techniques to account for cost
components that are common to numerous batches of output

Exercise:

A company manufactures a product in two department process:

assembly and finishing. The assembly department uses
weighted average costing; the percentage of completion of
overhead in this department is unrelated to direct labor. The
finishing department adds hardware to the product and uses
FIFO costing; overhead is applied in this department on a direct
labor basis. For June, the following data and costs were
gathered:

Assembly:
Units
Beginning WIP inventory (100% complete
for DM; 40% complete for DL, 30% 250
complete for OH)
Units started 8,800
Ending WIP inventory (100% complete for
DM; 70% complete for DL; 90% complete 400
for OH)

Costs
DM DL OH
Beg. WIPI P3,755 P690 P250
Current Period 100,320 63,606 27,681
Total P104,075 P64,296 P27,931

Finishing:
Units
Beginning WIP inventory (100% complete
for transferred in; 15% complete for DM; 100
40% complete for conversion