MODULE COST ACCOUNTING AND CONTROL WITH STRATEGIC COST MANANGEMENT

CHAPTER 4 JOB ORDER COSTING

What I Need to Know?

1. Define job order costing system and identify the types of industries that would be
most to use this system
2. Demonstrate the mechanics of a job order costing system

The job order cost procedure keeps the costs of various jobs or contracts separate
during their manufacture or construction. The cost unit is the job, the work order, or the
contract; and the records will show the cost of each. The method presupposes the
possibility of physically identifying the jobs produced and of charging each with its own
cost.

Major Source documents for Job Order Costing

1. Job – Order Cost Sheet – accumulate product costs of specific units or small
batches of units for both product costing and control purposes.

2. Material Stockcard – records of the perpetual book inventory of costs and

quantities of materials on hand.

3. Finished Goods Stockcard – records of the perpetual book inventory o costs and
quantities of completed goods held for sale.

4. Factory Overhead Control Cost Record – accumulate detailed manufacturing

overhead costs by department.

Accounting Procedure for Materials

1. Purchase of Materials
Material xxxx
 MODULE COST ACCOUNTING AND CONTROL WITH STRATEGIC COST MANANGEMENT

xxx
Accounts payable x

2. Return of materials to supplier

Material xxxx
xxx
Accounts payable x
Issuance of Direct
3. Materials
Work in process xxxx
xxx
Materials x
Issuance of Indirect
4. Materials
Factory overhead control xxxx
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Materials xxxx

Accounting Procedure for Labor

1. Recording of payroll
Payroll xxxx
xxx
Withholding tax payable x
xxx
SSS Premium payable x
xxx
Philhealth contribution payable x
xxx
Accrued Payroll x

2. Distribution of payroll
Work in process xxxx
Factory overhead control xxxx
xxx
Payroll x

3. Payment of payroll
Accrued payroll xxxx
xxx
Cash x
Accounting Procedure for Factory
Overhead

1. Recording of factory overhead applied

Work in process xxxx
xxx
Applied factory overhead x

2. Month end closing entry

Factory overhead applied xxxx
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Under/over-applied overhead xxxx

xxx
Factory overhead control x
3. Year-end closing entry
Cost of Goods Sold xxxx
xxx
Under/over – applied overhead x

There are two accounts used – factory overhead control and factory overhead applied.

Factory overhead control is used to accumulate actual overhead incurred, while factory
overhead applied is used to accumulate estimated factory overhead applied to
production. For factory overhead applied to production, a predetermined rate is used
and this is computed using any of the following as base:

1. Units of Production

2. Direct Material Cost

3. Direct Labor Hours

4. Direct Labor Cost

5. Machine Hours

If actual is bigger than applied, the variance is called under-applied factory overhead
(unfavorable) and this is taken as an addition to the Cost of Goods Sold in the
statement. If applied is bigger than actual, the variance is called over-applied factory
overhead (favorable) and this is taken as deduction from the Cost of Goods Sold in the
statement.
 MODULE COST ACCOUNTING AND CONTROL WITH STRATEGIC COST MANANGEMENT

The journal entry to record the cost of the jobs completed is:

Finished goods xxxx

Work in process xxxx

When the finished goods are delivered to customers, the sales and the cost of goods
sold are recorded as follows:

Accounts receivable xxxx

Sales xxxx

Cost of goods sold xxxx

Finished goods xxxx

 MODULE COST ACCOUNTING AND CONTROL WITH STRATEGIC COST MANANGEMENT

Illustrative Problem

Allenton Company is a manufacturing firm that uses job-order costing. At the beginning
of the year, the company's inventory balances were as follows:

Raw materials P
........ 26,000
Work in process
...... 47,000
Finished goods
....... 133,000

The company applies overhead to jobs using a predetermined overhead rate based on
machine-hours. At the beginning of the year, the company estimated that it would work
31,000 machine-hours and incur P248,000 in manufacturing overhead cost. The
following transactions were recorded for the year:

a. Raw materials were purchased, P411,000.

b. Raw materials were requisitioned for used in production, P409,000 (P388,000 direct
and P21,000 indirect).

c. The following employee costs were incurred: direct labor, P145,000; indirect labor,
P61,000; and administrative salaries, P190,000.

d. Selling costs, P148,000.

e. Factory utility costs, P12,000.

 MODULE COST ACCOUNTING AND CONTROL WITH STRATEGIC COST MANANGEMENT

f. Depreciation for the year was P121,000 of which P114,000 is and P7,000 is related to
selling and administrative activities.
related to factory operations

g. Manufacturing overhead was applied to jobs. The actual level 29,000 machine-hours.
of activity for the year was

h. The cost of goods manufactured for the year was P783,000.

i. Sales for the year totaled P1,107,000 and the costs on the that were sold totaled
P768,000 job cost sheets of the goods

j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods
Sold.

Required:

Prepare the appropriate journal entry for each of the items above (a. through j.). You
can assume that all transactions with employees, customers, and suppliers were
conducted in cash.

Answer:
a. Raw Materials Inventory ........ 411,000
Cash ...................... 411,000
b. Work in Process Inventory ...... 388,000
Manufacturing Overhead ......... 21,000
Raw Materials Inventory ... 409,000
c. Work in Process Inventory ...... 145,000
Manufacturing Overhead ......... 61,000
Administrative Salary Expense .. 190,000
Cash ...................... 396,000
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d. Selling Expenses ............... 148,000

Cash ...................... 148,000
e. Manufacturing Overhead ......... 12,000
Cash ...................... 12,000
f. Manufacturing Overhead ......... 114,000
Depreciation Expense ........... 7,000
Accumulated Depreciation .. 121,000
g. Work in Process ................ 232,000
Manufacturing Overhead .... 232,000

h. Finished Goods ................. 783,000

Work in Process ........... 783,000
i. Cash ........................... 1,107,000
Sales ..................... 1,107,000
Cost of Goods Sold ............. 768,000
Finished Goods ............ 768,000
j. Manufacturing Overhead ......... 24,000
.......
Cost of Goods Sold . 24,000
 MODULE COST ACCOUNTING AND CONTROL WITH STRATEGIC COST MANANGEMENT

Reference:
Compilation of Lecture Notes of Guia Mae B. Abaja, CPA, Part-time Professor

For further discussion please refer to the link provided:

CHAPTER 4-Job Order Cost Accounting- https://www.youtube.com/watch?v=o6lQLjtqKkM
CHAPTER 4-Job Order Costing Part 2- https://www.youtube.com/watch?v=_4Asy-G3RZ8
CHAPTER 4-Job Costing Flow of Costs- https://www.youtube.com/watch?v=OdUlcAwczRc