Job order Costing

Learning objectives
• Distinguish between job costing and process
costing
• Calculate the manufacturing unit cost in a job
costing
• Calculate the profit or loss per job
• Record accounting entries in a job costing
system
 Introduction
• Fundamental roles of cost systems is cost
accumulation which consists of identifying,
measuring and recording cost information in
relevant categories or classifications.
• Job costing v Process costing
• Job costing relates to a costing system that is
required in organizations where each unit or batch of
output of a product or service is unique.
• Process costing relates to those situations where
masses of identical units are produced and it is
unnecessary to assign costs to individual units of
output.
 Job Costing
• Different products or contracts
• Product or service are individual, distinguishable
and identifiable.
• Number of units produced is small.
• Clients can add specifications.
• Examples are as follow: Furniture on request,
advertisements, constructions.
Examples
• Advertisement Company
• Job Costing
• Flour Mill
• Process costing
• Medical care facility
• Job Costing
• Law Firm
• Job Costing
• A Breakfast Cereal Company
• Process costing
• Audting/accounting services
• Job costing
 Job costing procedures
• Receipt of a customer’s request for a quote
• Cost of job is estimated and quotation sent to
customer
• Customer’s order is received if quotation is
accepted
• Job commences. All costs are entered on a job
order cost sheet
• On completion of job, customer is invoiced and
job delivered
 Source documents in job costing
• Material
• Material requisition

• Labour
• Time card

• Production overhead
• Allocation of overhead
 Source documents
• Job Order Cost Card: issued for each individual
job (material, labour and overheads)
• Job nr, Date started and ended, Description,
amount, rate of material, labour and
overheads
Source documents – material
inventory record
Each individual item of raw materials has a card or
record.

Item: Handles Part No: AA2746

Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total
1/4 2,000 $5 $10,000 2,000 $5 $10,000

The sum of the balances of all these records should

equal raw materials in the general ledger.
 Source document – material
requisition slip
A document authorizing the issuance of raw materials from the
store to production.

Wallace Manufacturing Company

Materials Requisition Slip

Deliver to: Assembly Department Req. No. R247

Charge to: Work in Process – Job No. 101 Date 1/6/96

Quantity Description Stock No. Cost Per Unit Total

200 Handles AA2746 $5.00 $1,000

Requested by: Received by:

Approved by: Costed by:

 Source documents – Job cost
sheet
A form used to record the costs chargeable to a job to
determine: the total and unit cost of the completed job.
Job Cost Sheet
Job No. _________________________________ Quantity ________________________________
Item ___________________________________ Date Requested __________________________
For ____________________________________ Date Completed __________________________

Direct Direct Manufacturing

Date Materials Labour Overhead

Cost of completed job

Direct materials $
Direct labor
Manufacturing overhead
Total cost $
Unit cost (total dollars ÷ quantity) $
Job cost sheet - material
 Source documents – time ticket
A document that indicates the employee, the hours worked, the
account and the job to be charged, and the total laboUr cost.

Wallace Manufacturing Company

Time Ticket

Date: 1/6/99
Employee John Nash Employee No. 124
Charge to: Work in Process Job No. 101

Time Hourly Total

Start Stop Total Hours Rate Cost
0800 1200 4 10.00 40.00

Approved by Costed by
Job cost sheets – direct labour
 Predetermine overhead rate
A rate based on the relationship between estimated
annual overhead costs and expected annual
operating activity, expressed in terms of a common
activity base.

Estimated Annual
Overhead Costs ÷ Expected Annual
Operating
Activity
= Predetermined
Overhead Rate
 Using Predetermined Overhead Rate

Work in Process

Activity Base Predetermined is

X Overhead Rate assigned
to

Job Job Job

1 2 3
Job Cost Sheets –
Manufacturing Overhead Applied
 Summary of Cost Flows
Direct Materials:
$100

The Cost
Object:
Direct Labor:
$200 Job #123

DM $100
DL $200
Indirect Cost Pool: Overhead OH $50
Indirect Overhead
All Manufacturing Cost-Allocation Allocation Applied to
Costs Job #123: Total Cost:
Base: Rate:
$250
Direct
$1,000 Manufacturing $1,000 ÷ $10/DLhr
Labor-Hours 100 DLhrs X
= 5 hours
100 hours $10/DLhr used in
Job #123
=
$50
Accounting for Overhead

Actual costs will almost never equal budgeted

costs. Accordingly, an imbalance situation exists
between the two overhead accounts

If Overhead Control > Overhead Allocated,

this is called Under allocated Overhead

If Overhead Control < Overhead Allocated,

this is called Over allocated Overhead
 Accounting for Overhead
This difference will be eliminated in the end-of-period
adjusting entry process, using one of three possible
methods.

The choice of method should be based on such

issues as materiality, consistency, and industry
practice.
 Three Methods for Adjusting the Over/Under
applied Situations

1. Adjusted Allocation Rate Approach – all

allocations are recalculated with the actual, exact
allocation rate

2. Proration Approach – the difference is allocated

between Cost of Goods Sold, Work-in-Process,
and Finished Goods based on their relative sizes

3. Write-Off Approach – the difference is simply

written off to Cost of Goods Sold
 Accounting entries for job
costing Transaction Account to be debited Account to be credited

1 Material purchased Material control Creditors control (or Bank)

2 Direct material used Work in process control Material control

3 Factory labour costs incurred Wages control Wages payable

4 Direct labour allocated Work in process control Wages control

5 Factory overheads incurred Manufacturing overheads Creditors control (or Bank)

control
6 Factory overheads absorbed Work in process control Manufacturing overheads control

7 Under-absorbed overheads Cost of Goods sold Manufacturing overheads control

8 Over-absorbed overheads Manufacturing overheads Cost of Goods sold

control
9 Jobs completed Finished goods control Work in process control

10 Products sold Debtors control (or Bank) Sales

 Class Example 1
Kitchen CC manufactures furniture. They must manufacture a custom
made table for Mrs. Hampton. They used the following to make the
table:
Pine 12m @ N$ 63 per metre
Varnish 8 @ N$ 14 per litre
Labour: Worker 1: 25 hours @ N$18
Worker 2: 5 hours @ N$19
Productions overhead are being allocated using direct labour hours.
The budgeted direct labour hours are 50 hours.
Production overhead for the month:
Indirect material N$ 500
Indirect labour N$1 000
They only produced one table this month and sold it for N$3 500

Opening balance Closing balance

Material 200 300
Work in Progress 100 100
Completed Goods 200 200
Job Costing card
Description Quantity Rate Total
Direct material
Pine 12 63 N$756
Varnish 8 14 N$112
Total Material N$868

Direct labour
Worker 1 25 18 N$450
Worker 2 5 19 N$ 95
Total Labour N$545

Overhead
Allocated using
labour hours 30 30 N$900

Total Overhead N$900

Total for Job costing N$2 313

Class Example 2
Delta Limited, with a normal capacity of 2 000 labour hours per
month and budgeted monthly manufacturing overheads of
N$70 000, uses a job costing system. During May 2012, an order to
manufacture 100 units of a certain product is received (Job 101).
The scheduling section compiles the following cost estimate for the
execution of the job:

Material per unit N$12.50

Labour per unit 3 hours at N$7.00 per hour

During May 2012, all the material for Job 101 is issued, but only 80
units are completed. Note that only materials have been issued to
production. No conversion on the remaining 20 units has taken place
yet.
Required:
Calculate the value of the incomplete Job 101 on 31 May 2012.
Suggested solution
Cost statement ― Job 101
N$
Material put into production (100 units × N$12.50 per unit) 1 250
Direct labour (80 units × 3 hours × N$7.00 per hour) 1 680
Absorbed overheads (80 units × 3 hours × N$35.00¹) 8 400
Value of incomplete job 11 330

¹ Overhead absorption rate = N$70 000 ÷ 2 000 labour hours

These slides are only a guideline.
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