What is job order costing? 2.

) Factory Labor Overhead Cost Incurred and Distribution

Job order costing When you are incurring it
 Production costs are accumulated for each separate job; Entry:
a job is the output identified to fill a certain customer
order to replenish an item of stock on hand Payroll xx
 More or less it also refers to costing of specific items, so Accrued Payroll xx
this is lower in quantity, usually irregular items, these
are not usually done on a regular basis unlike product If you pay ang naas ibabaw ang entry is.
costing Accrued Payroll xx
Cash xx
What you need for job order costing is a…
Job order cost sheet As to the distribution of payroll account
 Details of the jobs are written as to the costs of direct Two factors either: Work in Process or F.O
material, direct labor, and overhead charged to each job Entry:
 Very specific, there is a job order number that you are
referring to For direct labor:
 Specifc customer where you’re producing that specific Working Process xx
product Payroll xx
For indirect labor:
Factory Overhead Control
What is the rationale supporting the use of process costing Payroll
instead of job order costing for product costing purposes?
3.) Accounting for Factory Overhead
 The type of cost accumulation method used by a  Two things to bear in mind, you’ll be computing it in
company will be determined by the type of actual overhead and the predetermined overhead
manufacturing operations performed. A manufacturing
company should use process cost accumulation for Actual overhead are the actual expense accounts, actual
product costing purposes when like units are continually expenses that you incur for this specific job
mass produced; when custom-made or unique goods
are produced job order costing would be more Entry:
appropriate. Process costing is often used in industries
such as chemicals, food processing, oil mining, rubber, Factory Ovearhead Control xx
and electrical appliances. With a continuous mass Expense/Asset Account xx
production of like units, the center of attention is the
individual process or (usually a department). For indirect labor
Factory Overhead Control xx
What is the primary objective in job order costing? Payroll xx
 The primary objective in job order costing is to For depreciation
determine the cost of materials, labor, and factory Factory Overhead Control xx
overhead used to produce a specific order or contract. Accumulated Depreciation xx
Cost etimates are made when the order is taken, and
the job order procedures are designed to reveal costs as Predeterminely assign an overhead
the order goes through production, thereby giving an
oppurtunity to control costs. Entry:

Work in Process xx
Eight types of Accounting Entries in Job Order Costing Applied Factory Overhead xx
*differences will lie under the factory overhead part*
*applied factory overhead can be computed using
1.) Materials Purchased and Used predetermined rates, in terms of labor’s hours, machine
Purchased a raw material on account/Cash hours
Entry: ( ang predetermined overhead e compare sya sa actual
overhead to know if understated or overstated ang factory
Raw Materials xx overhead control)
Cash/Accounts Payable xx
To close Applied Factory Overhead
When you used it for direct materials Applied Factory Overhead xx
Entry: Factory Overhead Controk xx

Work in Process xx If small variance underapplication or overapplication balance

Raw Materials xx To close factory overhead

If you are using the raw materials for indirect use Cost of Goods Sold xx
Entry: Factory Overhead Control xx

Factory Overhead Control xx

Raw Materials xx

4.) Accounting for Jobs Completed and Products Sold

 Entry:  Provides product costs for each manufacturing
department or process.
If it is on account  Main difference is for job order costing it’s each
Accounts Receivable xx quantity of products while for process costing it’s for
Sales xx each manufacturing department.
If Cash  These are often used by companies that manufacture
Cash xx units of product that are indistinguishable from each
Sales xx other, and are manufactured using a continuous
production process.e.g oil refineries, paper produces,
If a specific job is immediately shipped out, there’s no chemical processors, and food processors.
need for the work in process to go to finished goods, you can
immediately reclassify it to cost of goods sold Job order and process cost system are widely used; a
company may use a job order cost system for its products
Cost of Goods Sold xx and a product cost system for other products.
Work in Process xx
(immediately shipped out) The flow of manufacturing cost usually is from:

 Materials storeroom (materials inventory)

 Production process (work in process)
Direct Labor + Factory Overhead + Materials
inventory
If replenish in stock or put into warehouse  Warehouse (finished goods)
 Store (cost of goods sold)
Control accounts, work in process, and finished goods
Finished Goods xx
are all inventory accounts, making them asset accounts.
Work in Process xx In job order cost accounting system,perpetual inventory
Cost of goods sold is an expense account.
(Replenish a stock) controlling accounts and subsidiary ledgers are maintained
for materials, work in process, and finished goods inventory.
If the finished goods has been officially sold off then
that’s the time you reclassified cost of goods sold Materials account in the general ledger is refferred to as a
controllong account (a separate account for each type of
Cost of Goods Sold xx material is maintained in a subsidiary material ledger.
Finished Goods xx
Example:
Distinguish between Actual and Appiled Factory Overhead M. I W.I.O F.G.I

An actual factory overhead consists of the day-by-day costs Example of issuance of materials: Direct Materials
that are actually experienced and incurred by the company.
Applied factory overhead is the overhead charge to jobs On March 5, a company purchase 400 units of raw materials
based on the pre-determined factory overhead rate. This rate @ P 14.00/unit.
is created by dividing total estimated overhead by total On March 10, raw materials were requistioned for production
estimated number of units(or any other appropriate base). as follows: Job 101 - 200 units @ P 12.00/unit, Job 102 - 300
(okay so the number of units plays a crucial point in units @ P 14.00/unit.
determining this one or more or less also the number of
hours, in terms of labor hours or direct machine hours it really Entry:
depends on the scenario). The difference between actual and March 5 Materials Inventory(400 x 14) 5,600
applied factory overhead is the over-or underapplied factory Accounts Payable 5,600
overhead.
March 10 Work in Process 6,600
Materials Inventory 6,600

Job Order Costing Job 101(200x12) 2,400

There are two main types of cost accounting system for Job 102(300x14) 4,200
managing manufacturing operations one of which is job Total 6,600
order cost system and the other one is process cost system.

Job order cost system

 This provides product cost for each quantity of product
that is manufactured. *each quantity of product that’s
manufactured is called a job.* Therefore, job order cost
systems are often used by companies that manufacture
custom products for customers or batches of similar
products.
 Manufacturers that use a job or their cost system are
sometimes called job shops. More or less this is for
custom products.

Process cost sytem Factory Labor

 When employees work they will use time clocks and Factory overhead if debited, it will increase, when credited it
clockers will decrease. Actual overhead cost is debited, applied
 Time tickets and hours would be then recorded overhead is usually credited

Time Tickets recorded to Job Cost sheets  If the applied overhead is less than the actual overhead,
the debit is called under-applied factory overhead
Example: During March, a company accumulated (direct  If the applied overhead is more than the actual
labor) 800 hours for job 101 @P 16.00, and 600 hours for job overhead, it will have a credit balance - over-applied
102 @ P 12.00 factory overhead.

Job 101(800x16) 12,800 Example:

Job 102(600x12) 7,200
Total 20,000 Applied Factory Overhead
4,600 4,250
Entry: 350 - over-applied balance
Work in Process 20,000
Salaries Payable 20,000 A company has a estimated total overhead cost of
P 100,000.00 per year
Factory Overhead ( all manufacturing costs excepet direct Direct labor estimated 25,000
materials and direct labor)
(composed of) 100,000 / 25,000 = P 4.00/direct labor
Factory Overhead Indirect Materials, Indirect Labor, If job 101 800 hrs x 4 = 3,200
Factory power, factory depreciation If job 102 600 hrs x 4 = 2,400
Total 5,600
What if a company inccured factory overhead cots as follows:
Indirect materials - P 800.00 Entry:
Indirect labor - P 3,400.00 P 8,300 Work in Process 5,600
Utilities Expense - P 1,600.00 Factory overhead 5,600
Factory depreciation - P 2,500.00
Compare to previous which has FO of 8,300 so there is under
Entry: application of P 2,700.00
Factory Overhead 8,300
Materials inventory 800 Disposal of Factory overhead balance
Salaries payable 3,400  During the year the balance in the factory overhead
Utilities payable 1,600 account is carried forward and reported as a deffered
Accumulated dep. 2,500 debit or credit on the monthly balance sheets. However,
# any balance in the factory overhead account should not
carry over to the next year. It is because any such
balance applies only to operations of the current year
Factory Overhead  If the estimate for computing the predetermined
 Not directly related to the jobs overhead rate is reasonably accurate, the ending
 Cannot be indentified with or traced to specific jobs balance of factory overhead should be relatively small.
 Factory overhead costs are allocated to jobs using a For this reason, the balance of factory overhead at the
common measure related to each job, this measure end of the year is disposed off by transferring it to the
could be then called as activity base/activity driver cost of goods sold account.
 The activity base used to allocate overhead should
reflect the consumption or use of factory overhead cost If the ending balance is debit or underapplied overhead in the
 The process bt which factory overhead or other costs factory overhead account. It is to be disposed as follows:
are assigned to a cost object as a job is called cost
allocation Entry:
 Three common activity bases to allocate factory Cost of Goods Sold xx
overhead costs: Direct labor hours, direct labor costs, Factory Overhead xx
machine hours
If there is an ending credit balance or over application in the
Factory overhead coosts are normally allocated or applied to factory overhead. It is to be disposed as follows:
jobs using a predetermined overhead rate.
Estimated total overhead costs Entry:
Predetermined overhead rate = Estimated activity base Factory Overhead xx
Cost of Goods Sold xx
Example:
50,000 / 10,000 = P 5.00/direct labor hour
If 350 hrs x 5 = 1,750
If 500 hrs x 5 = 2,500
Total 4,250

Entry:
Work in Process 4,250
Factoy Overhead 4,250
Work in Process
 During the period work in process increased for the
following: Direct Materials, Direct Labor, and Applied
Factory Overhead

Example: At the end of March, Company A had completed

Job 101 - 500 units, Job 102 - 1,000 units

a.) Job 101 Job 102

Direct Materials 2,900 4,200
Direct Labor 12,800 7,200
Factory Overhead 3,200 2,400
Total 18,900 13,800

b.) Job 101

18,900 / 500 = 37.80

Job 102
13,800 / 1,000 = 13.80