COST ACCOUNTING AND

CONTROL
JOB ORDER COSTING SYSTEM

Alexsander C. Ong, CPA

Faculty, Polytechnic University of the Philippines – Sta. Rosa, Campus
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• Describe the mechanics of a job order costing system
• Apply the accounting procedures for manufacturing costs in a job
order system
• Identify the major source documents for job order cost sheet
• Learn how to account for losses in the job order costing system
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

JOB ORDER COSTING SYSTEM

•It is used by companies that make relatively small quantities
of distinct products or perform unique services that conform
to specifications designated by the customer.
•Costs are accumulated by job order
•Costs of different jobs cannot logically be averaged; a unique
cost must be determined for each job
•Custom manufacturers typically price their goods using
cost-plus approach
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

JOB ORDER COSTING DOCUMENTS

JOB ORDER COST SHEET – serves as
subsidiary ledgers that accumulates
product costs about a particular job.
Cost sheets for incomplete jobs
serve as subsidiary ledger for WIP
Inventory account
Cost sheets for completed jobs not
yet sold serve as subsidiary ledger for
Finished Goods account
Cost sheets for completed and sold
jobs serve as subsidiary ledger for
COGS
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING
JOB ORDER COSTING DOCUMENTS
MATERIAL REQUISITION FORM –
trace the issuance of raw
materials to the specific jobs so
that direct materials can be
included on the job cost sheet
JOB TIME TICKET – records the
hours work and job associated so
that direct labor cost can be
included on the job order cost
sheets
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

ILLUSTRATION 1
MLB Inc. is employing normal costing for its
job orders. The overhead is applied using a
predetermined overhead rate. The following
information relates to the MLB Inc. for the
year ended Dec. 31, 2016:

Additional Information:
1. Actual FOH for 2016 amounted to REQUIRED:
350,000
2. Jobs No. 101 and 102 were completed 1. Total Manufacturing Cost
and transferred to finished goods during 2. Cost of Goods Manufactured
2016
3. Job No. 101 was sold during 2016 3. Cost of Goods Sold
4. The 20% gross profit is based on cost 4. Gross Profit
5. WIP Inventory and Finished Goods
Inventory at Dec. 31, 2016
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

ILLUSTRATION 1
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

LOSSES IN JOB ORDER COSTING

Production process may result in losses of materials or
partially completed products due to:
SHRINKAGE – losses such as evaporation, leakage, oxidation
that are inherent and normal in the manufacturing process
Production process errors (either by humans or machines)
DEFECTS – lost units that can be economically reworked
SPOILAGE – lost units where rework cannot be
performed
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

LOSSES IN JOB ORDER COSTING

GENERALLY ANTICIPATED ON ALL
JOBS
• The predetermined overhead rate
should include an amount for normal
spoilage cost. The cost of normal
spoilage is then spread over all jobs in
process.
• Assumes that losses are naturally
inherent and unavoidable in the
production of good units, and the
estimated loss should be allocated to
the good units produced
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

LOSSES IN JOB ORDER COSTING

SPECIFICALLY IDENTIFIED WITH A
PARTICLUAR JOB
• The predetermined overhead rate
should NOT include an amount for
normal spoilage cost.
• In case of spoilage, the cost of the lost
units is assigned to that job that
caused spoilage.
• In case of rework, the cost of rework is
charged to that job where the defect
has been reworked.
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

ILLUSTRATION 2.1
Ekin Inc. has completed the Job 101, containing 1,100 shoes, during 2016 at the
following unit costs:
Direct Materials 2,000
Direct Labor 1,000
Factory overhead (including and allowance of 300 for spoiled work) 1,300
Final inspection of Job 101 disclosed 100 spoiled shoes which were sold to a
department for 200,000.
What is the unit cost of the good shoes produced on Job 101 if spoilage loss is
1. charged to all production?
2. charged to specific job?
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

ILLUSTRATION 2.1
CHARGED TO ALL JOBS CHARGED TO SPECIFIC JOB
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

ILLUSTRATION 2.2
For the year ended December 3, 2016, AU Inc. incurred the following costs on Job Order 201 for
manufacturing of 500 units:
Original cost accumulation:
Direct materials 500,000
Direct labor 400,000
Factory overhead 100,000
Direct costs of reworking 100 units:
Direct materials 100,000
Direct labor 200,000

What is the cost per units of Job Order 201 if the rework costs were attributable to:
1. Exacting specification of Job Order 201?
2. Internal Failure
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

ILLUSTRATION 2.2
EXACTING SPECIFICATIONS INTERNAL FAILURE
COST ACCOUNTING AND CONTROL
JOB ORDER COSTING

REFERENCES
• De Leon Jr., Guillermo M. & De Leon, Norma D. Cost Accounting (2012
Edition). GIC Enterprises & Co., Inc.
• Rante, Gloria A. Cost Accounting (2013 Edition). Millenium Books, Inc.