Cost Accounting

Seventeenth Edition, Global Edition

Chapter 4
Job Costing

Copyright © 2021 Pearson Education Ltd.

Learning Objectives (1 of 2)
4.1 Describe the building-block concepts of costing systems
4.2 Distinguish job costing from process costing
4.3 Describe the approaches to evaluating and
implementing job-costing systems
4.4 Outline the seven-step approach to normal
costing
4.5 Distinguish actual costing from normal costing
4.6 Track the flow of costs in a job-costing system

Copyright © 2021 Pearson Education Ltd.

Learning Objectives (2 of 2)
4.7 Adjust for under- or overallocated
manufacturing overhead costs at the end of the
fiscal year using alternative methods (年底時的調整)
4.8 Understand variations from normal costing

Copyright © 2021 Pearson Education Ltd.

Basic Costing Terminology—Review
Let’s review several key terms from prior chapters:
1. Cost objects are anything for which a cost
measurement is desired.
2. Direct costs of a cost object are costs that can
be traced to that cost object in an economically
feasible way.
3. Indirect costs of a cost object are costs that
cannot be traced in an economically feasible
way.

Copyright © 2021 Pearson Education Ltd.

Basic Costing Terminology—New Terms
4. Cost Pool (成本庫)—a grouping of individual indirect
cost items.
– Cost pools simplify the allocation of indirect costs
because the costing system does not have to allocate
each cost individually.(簡化間接成本的分攤流程)
5. Cost-allocation base (成本分攤基礎) —a systematic
way to link an indirect cost or group of indirect costs to
cost objects.
– For example, let’s say that direct labor hours cause indirect costs
to change.

• The concepts represented by these five terms constitute

the building blocks we will use to design the costing
systems described in this chapter.

Copyright © 2021 Pearson Education Ltd.

Cost Assignment

Copyright © 2021 Pearson Education Ltd.

Costing Systems
• In a Job Costing System (分批成本制): the cost object is
a unit or multiple units of a distinct product or service which
we call a job.
– Each job generally uses different amounts of
resources.
– Wedding announcements, aircraft, advertising

• In a Process Costing System (分批成本制): the cost

object includes mass production(大量生產) of identical(相
同) or similar(類似) products or service.
– we divide the total cost of producing an identical or
similar product or service by the total number of units
produced to obtain a per-unit cost.
– Oil refining, orange juice, soda pop
Copyright © 2021 Pearson Education Ltd.
Types of Product-Costing Systems

Process Job-Order
Costing Costing

 Used for production of small,

identical, low cost items.
 Mass produced in automated
continuous production process.
 Costs cannot be directly traced to
each unit of product.
Copyright © 2021 Pearson Education Ltd.
Types of Product-Costing Systems

Process Job-Order
Costing Costing

Typical process cost applications:

 Petrochemical refinery
 Paint manufacturer
 Paper mill

Copyright © 2021 Pearson Education Ltd.

Types of Product-Costing Systems

Process Job-Order
Costing Costing

 Used for production of large,

unique, high-cost items.
 Built to order rather than mass
produced.
 Many costs can be directly traced
to each job.
Copyright © 2021 Pearson Education Ltd.
Types of Product-Costing Systems

Process Job-Order
Costing Costing

 Job-shop operations
 Products manufactured in very
low volumes or one at a time.
 Batch-production operations
 Multiple products in batches of
relatively small quantity.
Copyright © 2021 Pearson Education Ltd.
Types of Product-Costing Systems

Process Job-Order
Costing Costing

 Typical job-order cost applications:

 Special-order printing
 Building construction
 Also used in service industry
 Hospitals
 Law firms
Copyright © 2021 Pearson Education Ltd.
 Costing Systems Illustrated
Exhibit 4.1 Examples of Job Costing and Process Costing in the Service, P125
Merchandising, and Manufacturing Sectors.

Copyright © 2021 Pearson Education Ltd.

Sequence of Events in a Job-Order Costing
System

Receive Begin
orders from production
customers

Schedule Order
jobs materials
 Accumulating Costs in a
Job-Order Costing System
Manufacturing
overhead (OH)
Applied to each
Direct job using a
materials predetermined
rate

THE JOB

Direct
labor
Copyright © 2021 Pearson Education Ltd.
 Accumulating Costs in a
Job-Order Costing System
Charge direct material and direct
labor to each job as incurred.
Direct Materials
Job No. 1 Special
documents
Direct Labor
Job No. 2 are used to
track costs
for each job.
Manufacturing Job No. 3
Overhead
Apply overhead to each job
using a predetermined rate.
Costing Approaches
Actual Costing—allocates indirect costs based on the
actual indirect cost rates times the actual quantities of the
cost allocation base.
Normal Costing—allocates indirect costs based on the
budgeted indirect cost rates times the actual quantities of
the cost allocation base.
• Both methods allocate direct costs to a cost object the
same way: by using actual direct cost rates times(乘)
actual consumption. 實際成本分攤率 * 實際耗用數

Copyright © 2021 Pearson Education Ltd.

 Actual and Normal Costing

Actual direct material Actual direct material

and direct labor and direct labor
combined with combined with
actual overhead. predetermined overhead.

Using a predetermined rate (預計分攤率)makes it

possible to estimate total job costs sooner.
Actual overhead for the period is not
known until the end of the period.
Costing Approaches Summarized
Actual Costing Normal Costing
Direct Costs Actual direct-cost rates Actual direct-cost rates
x actual quantities of x actual quantities of
direct-cost inputs direct-cost inputs
Indirect Costs Actual indirect-cost Budgeted indirect-cost
rates x actual quantities rates x actual quantities
of cost-allocation bases of cost-allocation bases

Copyright © 2021 Pearson Education Ltd.

Seven-Step Approach to Job Costing
Using Normal Costing (1 of 3)
1. Identify the job that is the chosen cost object.
2. Identify the direct costs of the job.
3. Select the cost-allocation base(s) to use for allocating
indirect costs to the job.
4. Identify the indirect costs associated with each cost-
allocation base. (Determine the appropriate cost pools
that are necessary.)

Copyright © 2021 Pearson Education Ltd.

Seven-Step Approach to Job Costing
Using Normal Costing (2 of 3)
5. Compute the Rate per Unit of each cost-allocation base
used to allocate indirect costs to the job (normal costing
uses budgeted values 預計分攤率)
Budgeted Manufacturing Overhead Rate  Rate per Unit  =
Budgeted Manufacturing Overhead Costs
Budgeted Total Quantity of Cost  Allocation Base

6. Compute the indirect costs allocated to the job (間接成本)

Budgeted Manufacturing Overhead Rate × Actual Base

Activity For the Job (預計製造費用分攤率 * 實際作業量)

Copyright © 2021 Pearson Education Ltd.

Seven-Step Approach to Job Costing
Using Normal Costing (3 of 3)
7. Compute total job costs by adding all direct and indirect
costs together. 將直接成本與間接成本加總

Direct Manufacturing Costs

Direct Materials xxxx
Direct Labor xxxx xxxx
Manufacturing Overhead
Indirect Costs xxxx
Total MFG Costs of Job XYZ xxxx

Copyright © 2021 Pearson Education Ltd.

 Job Costing Overview

Direct Materials:
$100

The Cost
Object:
Direct Labor:
$200 Job #123

DM $100
DL $200
Indirect Cost Pool: Overhead OH $50
Indirect Overhead
All Manufacturing Cost-Allocation Allocation Applied to
Costs Job #123: Total Cost:
Base: Rate:
$250
Direct
$1,000 Manufacturing $1,000 ÷ $10/DLhr
Labor-Hours 100 DLhrs X
= 5 hours
100 hours $10/DLhr used in
Job #123
=
Copyright © 2021 Pearson Education Ltd.
$50
Job-Order Cost Accounting
RoseCo Job-Cost Record
Job Number A - 143 Date Initiated 3-4-X2
Date Completed
Department B3 Units Completed
Item Wooden cargo crate
Direct Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate Amount

Cost Summary Units Shipped

Product Costs Amount Date Number Balance
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
Materials Requisition Form
RoseCo Materials Requisition Form

Requisition No. X7 - 6890 Date 3-4-X2

Job No. A - 143
Department B3

Description Quantity Unit Cost Total Cost

2 x 4, 12 feet 12 $ 3.00 $ 36.00
1 x 6, 12 feet 20 4.00 80.00
$ 116.00

Authorized
Signature Will E. Delite
Copyright © 2021 Pearson Education Ltd.
Employee Time Ticket
RoseCo Employee Time Ticket

Time Ticket No. 36 Date 3-5-X2

Employee I. M. Skilled Station 42

Starting Ending Hours Hourly

Time Time Completed Rate Amount Job No.
0800 1600 8.00 $ 11.00 $ 88.00 A-143

Totals 8.00 $ 11.00 $ 88.00 A-143

Supervisor C. M. Workman
 Manufacturing Overhead Costs
Overhead is applied to jobs using a predetermined overhead
rate (POHR) based on estimates made at the beginning of the
accounting period.

Budgeted manufacturing overhead cost

POHR =
Budgeted amount of cost driver (or activity base)

Overhead applied = POHR × Actual activity

Based on estimates, and Actual amount of the allocation

determined before the base, such as direct labor hours,
period begins incurred during the period
Copyright © 2021 Pearson Education Ltd.
Manufacturing Overhead Costs
Overhead is applied to jobs using a predetermined overhead
rate (POHR) based on estimates made at the beginning of the
accounting period.

Budgeted manufacturing overhead cost

POHR =
Budgeted amount of cost driver (or activity base)

Overhead applied = POHR × Actual activity

Recall the wooden crate example where:
Overhead applied = $4 per DLH × 8 DLH = $32

Copyright © 2021 Pearson Education Ltd.

Overhead Application Example

RoseCo applies overhead based on direct- labor hours.

Total estimated overhead for the year is $640,000. Total
estimated labor cost is $1,400,000 and total estimated labor
hours are 160,000.
What is RoseCo’s predetermined overhead rate?

Copyright © 2021 Pearson Education Ltd.

Overhead Application Example

Budgeted manufacturing overhead cost

POHR =
Budgeted amount of cost driver (or activity base)

$640,000
POHR =
160,000 direct-labor hours (DLH)

POHR = $4.00 per DLH

For each direct labor hour worked on a

job, $4.00 of factory overhead will be
applied to the job.
Copyright © 2021 Pearson Education Ltd.
Overhead Application Example
RoseCo Job-Cost Record
Job Number X - 32 Date Initiated 3-9-X2
Date Completed
Department B3 Units Completed
Item Wooden cargo crate
Direct Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate Amount
X7-7456 $ 240 23 26 $ 286

Cost Summary Units Shipped

Product Costs Amount Date Number Balance
Direct Materials $ 240
Direct Labor What amount of$ overhead
286 will
Manufacturing Overhead
Total Cost RoseCo apply to Job X-32?
Unit Cost
Contrasting Actual and Normal Costing
• Both actual costing and normal costing trace direct costs to
jobs in the same way because source documents identify
the actual quantities and actual rates of direct materials
and direct manufacturing labor for a job as the work is
being done.
• The only difference between costing a job with normal
costing and actual costing is that normal costing uses
BUDGETED indirect-cost rates where actual costing uses
ACTUAL indirect-cost rates calculated annually at the end
of the year.

Copyright © 2021 Pearson Education Ltd.

Job Costing Overview
Exhibit 4.4 Job-Costing Overview for Determining Manufacturing Costs of Jobs
at Robinson Company

Copyright © 2021 Pearson Education Ltd.

Flow of Costs in Job Costing
Exhibit 4.6 Flow of Cost in Job Costing

Copyright © 2021 Pearson Education Ltd.

Let’s summarize
the document
flow we have
been discussing
in a job-order
costing system.
 Job-Order Costing
Document Flow Summary

The materials Direct JobCost

Cost
requisition material Job
Job Cost
Sheets
indicates the cost s Job-Cost
Sheets
Sheets
of direct material Records
Materials
to charge to Materials
Ledger Cards
Materials
jobs Ledger Cards
Materials
Ledger Cards
Requisition
and the cost of
indirect material to Manufacturing
charge to Overhead
Indirect
overhead. Account
materials
 Job-Order Costing
Document Flow Summary
Employee time Direct JobCost
Cost
Labor Job
tickets indicate the Job Cost
Sheets
Job-Cost
Sheets
cost of direct labor Sheets
Records
to charge to Employee Time
jobs Employee Time
Ticket
Employee Time
Ticket
Employee Time
Ticket
and the cost Ticket
of indirect labor to Manufacturing
charge to Overhead
overhead. Indirect Account
Labor
 Job-Order Costing
Document Flow Summary
Employee Indirect
Time Ticket Labor

Overhead
Other Manufacturing Applied Job-Cost
Actual OH Overhead with Records
Charges Account
POHR

Materials Indirect
Requisition Material
Job-Order System Cost Flows

Let’s examine the

cost flows in a
job-order costing
system. We will
use T-accounts
and start with
materials.
 Job-Order System Cost Flows
Work in Process
Raw Materials (Job-Cost Record)
•Material •Direct •Direct
Purchases Material Material
•Indirect
Material

Mfg. Overhead
•Indirect
Material
Journal Entries (1 of 7)
Journal entries are made at each step of the production
process.(生產程序的每一個階段都要做分錄)
The purpose is to have the accounting system closely
reflect the actual state of the business, its inventories, and
its production process.
All product costs are accumulated in the work-in-process
control account.
– Direct materials used(耗用之直接原料)
– Direct labor incurred(已發生之直接人工成本)
– Factory overhead allocated (or applied)已(應)分攤製費

 Actual indirect costs (overhead) are accumulated in

the manufacturing overhead control account.(實際製
造費用) Copyright © 2021 Pearson Education Ltd.
Journal Entries (2 of 7)
1. Purchase of materials (direct & indirect) on credit:

 Materials Control XX
Accounts Payable Control XX

2. Usage of direct and indirect (OH) materials into

production:

 Work-in-Process Control XX
Manufacturing Overhead Control XX
Materials Control XX

Copyright © 2021 Pearson Education Ltd.

Journal Entries (3 of 7)
3. Manufacturing Payroll (direct & indirect) 薪資的發生

Work-in-Process Control (direct) XX

Manufacturing Overhead Control
(indirect) XX
Cash Control(W/P) XX
4. Other manufacturing overhead costs incurred during the
period(實際發生其他製造費用)

Manufacturing Overhead Control XX

Cash Control XX
Accumulated Depreciation Control XX

Copyright © 2021 Pearson Education Ltd.

Journal Entries (4 of 7)
5. Allocation (or application) of indirect costs (overhead) to
the work-in-process account is based on a predetermined
overhead rate (Budgeted Manufacturing Overhead Rate).

Work-in-Process Control XX
Manufacturing Overhead Allocated XX

Note: Actual overhead costs are never posted directly into

work-in-process.

Copyright © 2021 Pearson Education Ltd.

Journal Entries (5 of 7)
6. Products are completed and transferred out of production
(Work-in-Process) to Finished Goods in preparation for
being sold.

Finished Goods Control XX

Work-in-Process Control XX

Copyright © 2021 Pearson Education Ltd.

Journal Entries (6 of 7)
7. When goods are sold, the associated costs are
transferred to an expense (cost) account.
Cost of Goods Sold XX
Finished Goods Control XX

8. Accounts Receivable Control XX

Sales XX
Note: The difference between the sales and cost of goods sold represents the
gross margin (profit) on this particular transaction.

Copyright © 2021 Pearson Education Ltd.

Journal Entries (7 of 7)
9. When marketing or customer-service costs are incurred,
the appropriate expense account is increased, and Cash
Control is decreased (or Accounts Payable Control would
be increased, if the items/services are purchased on
account).
Marketing Expense XX
Customer-Service Expense XX
Cash Control XX

Copyright © 2021 Pearson Education Ltd.

分批成本制製造成本之流程
原 料 在 製品 製成品
期初餘額 領用直接 期初餘額 完工產品 期初餘額 已售產品
原料 成本 成本
本期進料 領用間接 直接原料 本期完工
原料
直接人工

已分攤製
造 費用

薪 工 製造費用 銷貨成本

本期雇工 直接人工 間接原料 已分攤製造 已售產品

發 放數 成本
分配 費用
間接人工 間接人工
分配
其他製造費
用 發生數
Copyright © 2021 Pearson Education Ltd.
Illustrated General Ledger in a Job Cost Environment
P137
Exhibit 4.7 Manufacturing Job-Costing System Using Normal Costing: Diagram of General Ledger
Relationships

Copyright © 2021 Pearson Education Ltd.

 P142

Accounting for Overhead

• Recall that two different overhead accounts were used in
the preceding journal entries:
– Manufacturing Overhead Control was debited for the
actual overhead costs incurred.(實際發生之製造費用)
– Manufacturing Overhead Allocated was credited for
estimated (budgeted) overhead applied to production
through the Work-in-Process account.(按預計分攤率分
攤至製成品之製造費用)

Copyright © 2021 Pearson Education Ltd.

Overhead Application Example

RoseCo’s actual overhead for the year was

$650,000 and a total of 170,000 direct-labor
hours were worked.
Using RoseCo’s predetermined overhead rate of
$4.00 per direct-labor hour, how much
overhead was applied to all of RoseCo’s jobs
during the year?

Copyright © 2021 Pearson Education Ltd.

 Overhead Application Example

RoseCo’s actual overhead for the year was $650,000

and a total of 170,000 direct-labor hours were worked.
Using RoseCo’s predetermined overhead rate of $4.00
per direct-labor hour, how much overhead was applied
to all of RoseCo’s jobs during the year?

SOLUTION
Applied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH =
$680,000
Copyright © 2021 Pearson Education Ltd.
Overapplied and Underapplied
Manufacturing Overhead
RoseCo’s Cost RoseCo’s
of Goods Sold Mfg. Overhead
for the year for the year
Unadjusted Actual Overhead
Balance overhead Applied
costs to jobs

$650,000 $680,000
$30,000
overapplied
Overapplied and Underapplied
Manufacturing Overhead

$30,000 $30,000 may be

may be allocated closed directly to
to these accounts. cost of goods sold.
OR
Work in Finished
Process Goods Cost of
Goods Sold
Cost of
Goods Sold RoseCo’s Method
 P142

Accounting for Overhead

• Actual costs will almost never equal budgeted costs.
Accordingly, an imbalance situation exists between the two
overhead accounts
– If Overhead Control > Overhead Allocated, this is
called Underallocated Overhead(少分攤製造費用)
– If Overhead Control < Overhead Allocated, this is
called Overallocated Overhead(多分攤製造費用)

Copyright © 2021 Pearson Education Ltd.

Accounting for Overhead
製造費用之會計處理

• This difference will be eliminated in the end-of-

period adjusting entry process, using one of three
possible methods(三種方式)
• The choice of method should be based on such
issues as materiality, consistency, and industry
practice

Copyright © 2021 Pearson Education Ltd.

 P142
Three Methods for Adjusting the
Over/Underapplied Situations
1. Adjusted Allocation Rate Approach(重新計算分
攤率) – all allocations are recalculated with the
actual, exact allocation rate----actual costing
2. Proration Approach(比例分攤法) – the difference
is allocated between Cost of Goods Sold, Work-
in-Process, and Finished Goods based on their
relative sizes
3. Write-Off Approach(沖銷法) – the difference is
simply written off to Cost of Goods Sold

Copyright © 2021 Pearson Education Ltd.

Choosing Among Approaches
When management is deciding among approaches, they
should consider the following:
1. The purpose of the adjustment
2. The total amount of underallocation or overallocation
3. Whether the variance was over- or underallocated
The choice of method should also consider materiality,
consistency, and industry practice.

Copyright © 2021 Pearson Education Ltd.

Job Costing in the Service Sector
• Job costing is often associated with the manufacturing
sector, but it is also very useful in service organizations,
such as auto repair shops, advertising agencies, hospitals,
and accounting firms.
• In an accounting firm, for example, management may wish
to determine the cost for each audit. In that case, each
audit would be a job, and costs would be traced or properly
allocated to it.

Copyright © 2021 Pearson Education Ltd.

Terms to Learn

Actual costing Manufacturing overhead applied

Actual indirect-cost rate Materials-requisition record
Adjusted allocation-rate approach Normal costing
Budgeted indirect-cost rate Overabsorbed indirect costs
Cost-allocation base Overallocated indirect costs
Cost pool Overapplied indirect costs
Job Process-costing system
Job-cost record Proration
Job-cost sheet Source document
Job-costing system Underabsorbed indirect costs
Labor-time sheet Underallocated indirect costs
Manufacturing overhead allocated Underapplied indirect costs

Copyright © 2021 Pearson Education Ltd.

3-34

Copyright © 2021 Pearson Education Ltd.

2-36

Copyright © 2021 Pearson Education Ltd.

3-45

Copyright © 2021 Pearson Education Ltd.