COST Chapter 3 - Illustration INST - Job Order Costing

Addis Ababa University, College of Business & Economics, Department of Accounting & Finance
 ILLUSTRATION
 To illustrate the procedures used to accumulate and assign costs to a job in

job order costing system, assume that:
ABC Furniture Factory has three jobs in the coming year – Job No.
555, Job No. 556, and Job No. 557.
 Job No. 555 is a job order received from Bantu University for
1,000 Student Chairs, and
 Job No. 556 is production of 30 Coffee Tables for stock, and
 Job No. 557 is production of 20 Cupboards for stock.
To keep the illustration simple, assume there is NO Beginning
Inventory of Work in Process and Finished Goods.
1. The Beg. Inventory of DMs consisted of:

 Material A------------22,400.00
 Material B------------15,600.00
 Material C------------21,000.00
Total ---------------59,000.00
2. DMs amounting to 118,000.00 are Purchased on account on

January 26 from Tadu Wood Processing, terms 2/10, n/60.
 The details are:
 Material A------------- 2,000.00
 Material B------------ 32,000.00
 Material C------------ 80,000.00
 Material D ----------- 4,000.00
Total --------------118, 000.00
 The following journal entry is required to record the purchase:
Debit Credit
Materials and Supplies – Control 118,000.00
Account Payable 118,000.00
 The Materials and Supplies Account is a controlling account of

the four types of materials, A, B, C and D.
 The individual items will be posted to their respective
Subsidiary Ledger.
Illustration - Cost & Mgt. Accounting I- Ch. 3; Instructor: Kassaye Tuji, 2022/3GC (2015EC) Page | 1
3. Production is to commence and the following materials are issued:

 Material B---------------- 20,000.00
 Material C---------------- 12,000.00
 The issuance of DMs is a change that needs to be recorded:
Debit Credit
Work In Process 32,000.00
Materials and Supplies –Control 32,000.00
 Now a separate Job Cost Sheet is needed, to accumulate cost of each job.
 Assume from the total materials, the three jobs are to be charged in
the following way:
 Job 555----------12,800.00
 Job 556------------6,400.00
 Job 557 ----------12,800.00
Total--------------32,000.00
Manufacturing OH is applied at 70% of Direct Labor Cost.
Job Cost Sheet

Job No. 555 Date started: Jan. 29, 2021
Date completed: February 20, 2021
Item 4154 – Student Chair For: Customer - Bantu University
Direct Material Direct Labor MOH
Date Req. No. Amount Date Hrs. Amount Date DLC Rate Amt.
Jan. 28 906 12,800 Jan. 31 100 2,000 Feb. 13,200 0.7 9,240
2021 2021 28
Feb.14 909 24,000 Feb. 28 560 11,200 2021
2021 2021 13,200
Job Cost Sheet

Date completed: February 12, 2021
Item 4152 – Coffee Tables For stock
Direct Material Direct Labor Manufacturing Overhead
Jan. 28 906 6,400 Jan. 31 50 1,000 Feb. 6,600 0.7 4,620
2021 2021 28
Feb. 14 909 12,000 Feb. 28 280 5,600 2021
2021 2021 6,600
Job Cost sheet

Date completed: March 28, 2021
Item 4152 – Cupboard For stock
Direct Material Direct Labor Manufacturing Overhead
Jan. 28 906 12,800 Jan. 31, 100 2,000 Feb. 13,200 0.7 9,240
2021 2021 28
Feb. 14 909 24,000 Feb. 28 560 11,200 2021
2021 2021 13,200
4. The Total Labor Cost of the month of January summed 25,000.00, out
of which 20,000.00 is Indirect.
 The journal entry to record the payroll for the month is as follows:
Debit Credit
Mfg. Overhead 20,000.00
Wages Payable 25,000.00
 The total Direct Labor Cost of the January is to be charged to the

three jobs in the following manner:
↗ Job no. 555 and Job no. 557 are to be charged 40% each, and
↗ Job no. 556 is charged 20%.
The amount then filled on the job cost sheet.
 Accordingly, the DL Cost of January; 5,000 are shared:

2,000:1,000:2,000 respectively. (See the job cost sheet above).
5. Additional Raw Materials are issued amounting to Birr 78,000.00.

 The detail is shown below:
 Material A --------------18,000.00
 Material B --------------23,000.00
 Material C---------------31,000.00
 Material D----------------6,000.00
Total --------------------78,000.00
 Out of the total 78,000.00, materials amounting to Birr 18,000 are

Indirect Materials like glues.
 The journal entry to record the issuance of the direct and indirect
materials issued looks the following:
Debit Credit
Manufacturing Overhead 18,000.00
Material and Supplies- Control 78,000.00
 The three jobs are charged the 60,000.00 DMs in the ff manner:
 Job no. 555 ---------- 24,000.00

 Job no. 556----------- 12,000.00
 Job no. 557 ---------- 24,000.00
 Thus, the job cost sheet is filled for the DMs!
(Refer the job cost sheet above!)
6. Indirect Manufacturing Costs incurred during the month totaled

Birr 4,000.00.
 The journal entry to record the actual MOH is as follows:
Debit Credit
Sundry Accounts 4,000.00
7. The Payroll for the month of July totaled 48,000.00. The Indirect
Labor Cost is Birr 20,000.
The Direct Labor Cost (28,000) is charged to the three Jobs –:

Job no. 555, Job no. 556, and Job no. 557 in 40%, 20%, and 40%
respectively (11,200 : 5,600 : 11200).
 See the Job Cost Sheet above!
 The following journal entry is required to record the payroll for the
month of February.
Debit Credit
Wages Payable 48,000.00
 The job cost sheets will be charged in the percentage given above!
8. Manufacturing overhead is applied at 70% of DL Cost!
 The ff journal entry is required to record the MOH Applied to the

three jobs.
Debit Credit
Manufacturing overhead applied (70% of DL) 23,100.00
(To record manufacturing overhead applied)
↓ See the next allocation!
 The MOH Applied will be charged to the three jobs in the following manner.
(Refer to the job cost sheet above)
Jobs Direct Labor Cost Overhead Rate MOH Applied
Job no. 555 13,200.00 70% 9,240.00
Job no. 556 6,600.00 70% 4,620.00
Job no. 557 13,200.00 70% 9,240.00
Total 23,100.00
9. Actual MOH cost for the month of February totaled 19,800.00.
 The journal entry to record the Actual MOH is as follows:

Debit Credit
Manufacturing Overhead – Control 19,800.00
Sundry Accounts 19,800.00
10. Job no. 555 and Job 556 are completed and transferred to the
Finished Good Inventory Warehouse.
 To record the transfer, the Job Cost Sheet must be summarized!
 The summary of the two job cost sheets gives a total cost amount of:
 (555) Birr 59,240 (12,800 + 24,000 + 2,000 + 11,200 + 9,240) and
 (556) Birr 29,620 (6,400 + 12,000 + 1,000 + 5,600 + 4,620) respectively
&
 (Total) Birr 88,860
 The journal entry to record the transfer looks the following:
Debit Credit
Finished Good 88,860.00
(To record the transfer of units completed )
 Job 555 is for 1,000 Student Chairs, and Job 556 is for 30 Coffee Tables.
 Thus, the Unit Cost of each product is Birr 59.24 and 987.30 respectively.
 The following table shows the computation of unit cost of items produced.
Job no. 555 Job no. 556

Total Cost of Production 59,240.00 29,620.00
Number of Units Produced 1,000 30
Cost Per Unit 59.24 987.30
11. Bantu University has paid Birr 85 per chair, and 5 coffee tables are
sold for Birr 1,400.00 each during the month of February.
 The journal entry to record the sale of the Student Chairs and
Coffee Tables is follows ((1000*85)+(5*1400) =92,000):
Debit Credit
Cash 92,000.00
Sales 92,000.00
 Since a perpetual inventory system is used,

 a separate record is maintained for cost of goods sold.
 The Journal Entry to record the COGS is as follows:

((59.24*1,000)+(5*987.30) = 64,176.50):
Debit Credit
Cost of Goods Sold 64,176.50
Finished Good 64,176.50
 The unfinished job, job no. 557 represents the work in process at
the end of the month of February.

COST Chapter 3 - Illustration INST - Job Order Costing

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Addis Ababa University, College of Business & Economics, Department of Accounting & Finance

 To illustrate the procedures used to accumulate and assign costs to a job in

1. The Beg. Inventory of DMs consisted of:

2. DMs amounting to 118,000.00 are Purchased on account on

 The Materials and Supplies Account is a controlling account of

3. Production is to commence and the following materials are issued:

 The issuance of DMs is a change that needs to be recorded:

Manufacturing OH is applied at 70% of Direct Labor Cost.

Job Cost Sheet

Job Cost Sheet

Job Cost sheet

 The total Direct Labor Cost of the January is to be charged to the

 Accordingly, the DL Cost of January; 5,000 are shared:

5. Additional Raw Materials are issued amounting to Birr 78,000.00.

 Out of the total 78,000.00, materials amounting to Birr 18,000 are

 Job no. 555 ---------- 24,000.00

6. Indirect Manufacturing Costs incurred during the month totaled

 The journal entry to record the actual MOH is as follows:

The Direct Labor Cost (28,000) is charged to the three Jobs –:

8. Manufacturing overhead is applied at 70% of DL Cost!

 The ff journal entry is required to record the MOH Applied to the

9. Actual MOH cost for the month of February totaled 19,800.00.

 The journal entry to record the Actual MOH is as follows:

 To record the transfer, the Job Cost Sheet must be summarized!

 The journal entry to record the transfer looks the following:

Job no. 555 Job no. 556

 Since a perpetual inventory system is used,

 The Journal Entry to record the COGS is as follows:

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