LECTURE-JOB ORDER COSTING

Job Order Costing System is used when many different products are produced each period or when
products are made on specific customer orders.

It is appropriate to use Job Order costing system when direct costs can be identified with specific units
of production.

It is used by custom manufacturers such as automobiles, aircraft, auto repair shop, construction,
printing and service business.

Job order costing is the accumulation of costs by specific jobs, contracts, or orders.

Flow of Product Costs in Job Order Costing

The three elements of costs are

Materials)
Labor )
Overhead)

Journal Entries to apply the three elements of costs to production in Job Order Costing

1. Work In process Inventory-Job #201 xxx

Work in process Inventory-Job # 202 xxx
Workin process Invenotry-Job #203 xxx
Raw Materials Inventory xxxx
To record issuance/application of materials to production.

2. Work in process Inventor-Job #201 xxx

Work in process Inventory-Job #202 xxx
Work in Process Inventory-Job #203 xxx
Accrued salaries xxxx
To record incurrence of labor xxxx

3. Work in process inventory-Job #201 xxx

Work in process inventory-Job #202 xxx
Work in process inventory-Job #203 xxx
Manufacturing Overhead xxxx

Illustration:

Assume that Peter Senen Manufacturing Company manufactures high end computer equipment.
Peter Senen started its operations on Sept 1, 2020 with two job orders (Job 201 and Job 202). As of
Sept. 30, Peter Senen reported the following inventories on hand:
Raw materials P60, 000
Work in process (100 units) 80, 000
Finished Goods (20 units) 70, 000
The summary of the outstanding jobs at the end of Sept. 30 follows:
Job #201 Job # 202 Total
Started 20 100 120
Completed 20 - 20
In process - 100 100

In October 2020, Peter Senen accepted a new order for 150 units of computer equipment and a new
job order (Job #203) was opened.
The following transactions took place in September 2020.
1. Purchased raw materials amounting to P124, 000 on account.
Journal Entry
Raw materials inventory P124, 000
Accounts Payable P124, 000
To record the purchase of raw materials.

2. Upon inspection, Peter Senen found sound defective materials amounting to P4, 000, which they
returned to the supplier.
Journal Entry
Accounts Payable 4,000
Raw materials inventory 4,000
To record the return of raw materials to suppliers.

3. Raw materials requisitioned was received for P95,000, including indirect materials of P5,000, to be
used for the following jobs:
Direct Materials Indirect Materials
Job 202 P20,000 P2,000
Job 203 70,000 3,000
Total P90,000 P5,000

Journal Entry
Work in process Inventory-Job 202 20,000
Work in process Inventory-Job 203 70,000
Manufacturing Overhead 5,000
Raw materials Inventory P95,000
To record issuance and application of materials.

4. Assume the following payroll data for the month of October:

Total Direct Labor Indirect Labor Sales Admin

Gross Payroll P264, 000 P200,000 P20,000 P28,000 P16,000
Deductions
Witholding taxes 46,000 35,600 3,000 4,200 3,200
SSS/Philhealth 16,250 12,275 1,225 1,750 1,000
Total P62,250 P 47,875 P4,225 P 5,950 P4,200
Net P201,750 P152,125 P15,775 P22,050 P11,800

Journal entry
Payroll 264,000
Witholding tax payable 46,000
SSS/Philhealh payable 16,250
Accrued salaries 201,750
To record the payroll for the period.
Payroll was paid.

Journal entry
Accrued salaries 201,750
Cash 201,750
To record the payment of payroll.

Assume that the direct labor costs of P200,000 are to be allocated to the following jobs:
Job 202 P50,000
Job 203 150,000
Total P200,000
 Journal entry
Work in process inventory-Job 202 50.000
Work in process inventory-Job 203 150,000
Manufacturing overhead 20,000
Selling expenses 28,000
Administrative expenses 16,000
Payroll 264,000
To record the distribution of the payroll.

The following employer contributions for the month of October payroll:

Total Direct Labor Indirect Labor Sales Admin

SSS contr. P18,480 P14,000 P1,400 P1,960 P1,120
EC contributions 410 270 40 80 20
Philhealth 3,050 2,275 225 350 200
Pag-big fund 5,280 4,000 400 560 320
Total P27,220 P20,545 P2,065 P2,950 P1,660

Journal Entry
Manufacturing Overhead (20,545+2,065) 22,610
Selling expenses 2,950
Administrative expenses 1,660
SSS/Philhealth/Pagibig/ payable 27,220
To record the share of Peter Senen for SSS/EC/Philhealth/Pag-ibig.

5. Assume that Peter Senen incurred the following general factory expenses during the month of
October.
Rent on factory space P50,000
Utilities (power,electricity) 23,000
Production property taxes 20,000
Other factory costs 9,390
Total P102,390

None of these expenses have been paid and Peter Senen uses accrued expenses account to
recognize these transactions.

Journal Entry
Manufacturing overhead 102,390
Accrued expenses 102,390
To record the actual manufacturing overhead.

Assume further that Peter Senen recognized P40,000 depreciation expense on factory equipment.

Journal entry
Manufacturing overhead 40,000
Accumulated Depreciation 40,000

6. Assume that Peter Senen uses direct labor hours to compute the predetermined overhead rate
which will be used in the application of manufacturing overhead to production. Assume that the
estimated manufacturing overhead cost for the year will beP360, 000 and the estimated direct labor
hours to be incurred is 12,000 hours.
7. Peter Senen incurred the following actual direct labor hours:
Job 202 2,000 hours
Job 203 4,000 hours
Total 6,000 hours

First compute the overhead rate

Formula in computing overhead rate
Total estimated manufacturing overhead= Predetermined overhead rate
Cost allocation base

Predetermined overhead rate= P360, 000= P30.00/dlh

12,000
Journal Entry
Work in process- Job #202 60,000
Work in process-Job #203 120,000
Manufacturing overhead Applied 180,000
To record the application of overhead to production.

8. The actual factory overhead is compared to applied factory overhead and difference is closed to
Cost of Goods Sold.
Actual Manufacturing Overhead 190,000
Applied Manufacturing Overhead 180,000
Under-applied (over-applied) P10,000

Journal Entry
Manufacturing overhead applied 180,000
Cost of goods sold 10,000
Manufacturing overhead 190,000
To close the under-application of manufacturing overhead to cost of goods
sold.

Actual Manufacturing overhead

JE# 3 5,000
#4 20,000
#4 22,610
#5 102,390
#5 40,000
Total P190,000

9. Assume that Peter Senen incurred the following expenses during the month of October and not
paid.
Total Selling Administrative
Rent P12,000 P7,000 P5,000
Depreciation 10,000 2,000 8,000
Utilities 6,000 4,000 2,000
Advertising 3,000 3,000 -
Shipping 3,000 3,000 -
Miscellaneous 1,390 1,000 390
Total P35,390 P20,000 P15,390

Journal Entry
Selling Expenses 20,000
Administrative expenses 15,390
Accrued expenses 35,390
To record selling and administrative expenses.
10. Assume that Job 202 is completed and transferred to Finished Goods warehouse. Assume that
completed Job 201 produced a total of 100 units.

Journal Entry
Finished goods inventory 210,000
Work in process inventory -job 202 210,000
To record the costs of the completed units (Job #202) transferred to
warehouse.

Unit cost= P210,000 P2,100/unit

100 units

11. Assume that Peter Senen shipped 90 units to the following customers at P4,000 each on account.

Journal entry
Accounts Receivable (90 X 4,000) 360,000
Sales 360,000
To record the sales.

Cost of goods sold 187,000

Finished goods inventory 187,000
To record the cost of goods sold.

Units Sold Unit Cost Total

Job #201 20 P2,000 P40,000
Job # 202 70 2,100 147,000
Total P187,000

REQUIRED: Prepare the following:

1. Journal Entries to record the above transactions.

2. The summary of completed and uncompleted jobs as of October 31, 2020.
3. Statement of Cost of Goods Manufactured for the month of October 31, 2020
4. Income Statement for the month of October 31, 2020

Requirement # 2 Summary of completed and uncompleted jobs as of October 31, 2020

Work in Process Inventory

Job No. 201 Job No. 202 Job No. 203 Total
Beg. Inventory - 100 - 100
Started - - 150 150
Completed - (100) - (100)
Ending W/P - - 150 150

Finished Goods Inventory

Job No. 201 Job No. 202 Job No. 203 Total
Beg. FG 20 - - 20
Completed - 100 - 100
Sold (20) (70) - (90)
Ending FG - 30 - 30
 Job No. 201 Job No. 202 Job No. 203 Total
Beg FG P40,00 P- P- P40,000
Completed - 210,000 - 210,000
Sold (40,000) (147,000) - (187,000)
Ending FG - P63,000 - P63,000

Requirement No.3-Statement of Cost of goods manufactured

Peter Senen Manufacturing Company

Statement of Cost of Goods Manufactured
For the Month Ended October 31, 2020

Raw materials inventory, October 1 P 60, 000

Add: Purchases 120, 000
Total materials available for use P 180, 000
Less: Raw materials inventory, October 31 (85, 000)
Total materials used P 95, 000
Less: Indirect Materials used (5, 000)
Direct materials used P 90, 000
Direct labor 200, 000
Manufacturing overhead applied 180, 000
Total manufacturing costs P 470, 000
Add: Work in process-October 1 P80, 000
Total goods placed in process P 550, 000
Less: Work in process-October 31 (340, 000)
Cost of goods manufactured P210, 000

Requirement No. 4

Peter Senen Manufacturing Company

Income Statement
For the Month Ended October 31, 2020

Sales P360,000
Less: Cost of goods sold
Finished goods inventory -October 1 P40,000
Total cost of goods manufactured 210,000
Total goods available for sale P250,000
Less: Finished goods inventory-October 31 63,000
Unadjusted Cost of goods sold P187,000
Less: Under-applied overhead 10,000 197,000
Gross Income P163,000
Less: Operating Expenses
Selling expenses P50,950
Administrative expenses 33,050 84,000
Net Income before tax during the month P55,300