Cost Accounting Foundations and Evolutions

Kinney, Prather, Raiborn

Chapter 4 Job Order Costing

Learning Objectives (1 of 3)
Contrast the job order and process costing systems and their valuation methods Define what the term job means Explain the purpose of the documents used in a job order costing system

Learning Objectives (2 of 3)
List the journal entries used to accumulate costs in a job order costing system Identify how technology impacts the gathering and use of information in job order costing systems

Learning Objectives (3of 3)

Explain how standard costs are used in a job order costing system Describe how job order costing information supports management decision making Explain how losses are treated in a job order costing system

Job Order or Process Costing

Job Order Small quantities Batches of identifiable, tailor-made products User-specific services Tracks costs by job

Job Order or Process Costing

Job Order Small quantities Batches of identifiable, tailor-made products User-specific services Tracks costs by job Process Large quantities Homogeneous goods Tracks costs by batch of goods by department

Job Order Costing

A job is a single unit or group of units identifiable as being produced to distinct customer specifications A job can be a
Client Engagement Project Contract

Costing Systems
Job order costing Process costing

COLA

Product Costing
Cost identification Cost measurement Product cost assignment

Methods of Product Costing

Cost Accumulation System defines
cost object method of assigning costs to production

Valuation Method specifies

how product costs will be measured

Six Possibilities
V A L U A T I O N COSTING SYSTEM M E T H O D Job Order
Actual Normal Standard

Process
Actual Normal Standard

Valuation Methods
Actual
Actual direct material Actual direct labor Actual overhead

Standard
Standard direct material Standard direct labor Standard overhead

Normal
Actual direct material Actual direct labor Predetermined overhead The Difference

Job Order Costing System

Each job is a cost object Costs are accumulated for each job A job can consist of one or more units of output There is a subsidiary ledger for each job

Job Order Costing System

WIP Subsidiary Ledger
100

Job 1

Job 2
200

Job 3
500

WIP Control
Job 1 Job 2 Job 3 Total 100 200 500 800

Job 1 + Job 2 + Job 3

WIP Control

Material Requisition Form

Tracks who is responsible for materials Verifies flow of materials from warehouse to department to job

Material Requisition Form

Tracks who is responsible for materials Verifies flow of materials from warehouse to department to job Journal entry
Work in Process Inventory (direct material) Manufacturing Overhead (indirect material) Raw Material Inventory

Materials Requisition Form

No. ### Date ___________________ Job No. _________________ Department _______________ Authorized by ___________ Issued by _________________ Received by _____________ Inspected by _______________ Item Part Unit of Quantity Quantity Unit Total No. No. Descrip. Measure Required Issued Cost Cost

Job Order Cost Sheet

All financial information about a job
direct material (from material requisition) direct labor (from time sheets or labor tickets) applied overhead budgeted cost information

Job Order Cost Sheet

All financial information about a job
direct material (from material requisition) direct labor (from time sheets or labor tickets) applied overhead budgeted cost information

When job is complete, use job order cost sheet to analyze actual costs to budgeted costs

Job Order Cost Sheet

Customer ____________ Job No. ### Starting Date _________ Job Description ____________ Completion Date ______ Contract Price _____________ Materials Direct Labor Overhead Applied Date Ref# Amount Date Ref # Amount Date Ref# Amount

Total Materials _________ Total Labor _________ Total Cost of Job Total OH Applied _________ ========

Employee Time Sheet

Time worked on each job

Employee Time Sheet

Time worked on each job Journal entry
Work in Process Inventory (direct labor) Manufacturing Overhead (indirect labor) Salaries and Wages Payable

Employee Time Sheet

Employee Name _______________ Employee No. _______________ Department _______________ Type of Work Job No. Start Time For week ending _______ Stop Time Day Total Hours

Employee Signature

Supervisors Signature

Manufacturing Overhead
Overhead Account
Actual Overhead Applied Overhead

Journal Entry
Work in Process Inventory Manufacturing Overhead (applied)

Completion of a Job
Move job cost sheet from WIP subsidiary to Finished Goods subsidiary

Completion of a Job
Move job cost sheet from WIP subsidiary to Finished Goods subsidiary Journal entry
Finished Goods Inventory Work in Process Inventory

Standard Cost System

Actual cost Normal cost Standard cost
Predetermined norms (or standards) for materials, labor, and overhead Compare actual costs to standard costs difference is a variance

Management Use of Job Order Costing Systems

Estimate future job costs Establish realistic bids and selling prices Develop budgets and standards Compare actual costs to estimated costs Determine which jobs are profitable Manage inventory

Product and Material Losses

Shrinkage
Evaporation Leakage Oxidation

Production errors
Defects can be economically reworked Spoilage cannot be economically reworked

Product and Material Losses

Normal Loss expected during production Abnormal Loss exceeds that expected during production

Normal Loss
Anticipated on all jobs
Include cost when calculating predetermined overhead application rate Include cost less the estimated disposal value

Specific to a job
Applied to the specific job Include cost less the estimated disposal value

Abnormal Spoilage
Period cost includes cost of abnormal loss less any disposal value

Product and Material Losses

Normal Loss Loss for most jobs Loss identified with a specific job In overhead rate Charge to specific job Abnormal Loss Period cost

Period cost

Questions
What is the difference between job order and process costing systems? How do actual, normal, and standard costing valuation methods differ? How is the job order cost sheet used?