COST ACCOUNTING NOTES
(Roverson D. Mortega)
JOB ORDER COSTING
NATURE OF JOB ORDER COSTING
Costs → Accumulated by jobs or lot → Making it easier
to determine the total costs of manufacturing a job as a
basis of setting the selling price
Each Job → prepared by batch in accordance with
customers’ specifications
Costs of DM & DL → Traced to individual jobs in process
Costs of OH → Allocated based on the most
appropriate method
Costs of DM, DL, & OH → Summarized in a WIP
Account
SOURCE DOCUMENTS
Job Cost Sheet
➢ Shows the total cost incurred to manufacture a
particular order
➢ Serves as a subsidiary ledger for the jobs in
process
➢ Balance is compared periodically with WIP
Account to ensure that they are balanced
➢ May also include budgeted cost of DM, DL, &
OH to compare the actual results with the
established standard cost for effective control
Materials Requisition Slip
➢ Supports the materials issued to production
➢ Shows the description, quantity, and the unit
cost of materials issued to a specific job
➢ Proper Internal Control → No material should
be issued unless proper authority approves the
release of materials through this document
Time Ticket
➢ Supports the labor incurred in production
➢ Shows the hours worked, hourly rate, and the
cost of labor incurred for a specific job
➢ An employee working on a unique order is
often required to fill out a timesheet recording
the work they have completed
ACTUAL COSTING AND NORMAL COSTING IN JOB
ORDER COSTING SYSTEM
Actual Costing → ACTUAL DM + ACTUAL DL + ACTUAL
OH
Normal Costing → ACTUAL DM + ACTUAL DL + APPLIED
OH → May result to the recognition of OH Variance
PRODUCTION LOSSES IN JOB ORDER
In the Production Process → Some goods may be
defective and some may be spoiled
➢ Spoiled Units → units that do not meet
production standards and are either sold for
their salvage value or discarded. When spoiled
units are discovered, they are taken out of
production and no further work is performed
on them (cannot be reworked)
➢ Defective Units → are units that do not meet
production standards and must be processed
further in order to be saleable as good units or
as irregulars (requires additional reworking to
make them good units)
Accounting for Spoilage and Defects in Job Order
depends on the following:
A. Spoilage is Normally Anticipated or Common to
All Jobs
B. Spoilage is Specifically Identified with a
Particular Job
SPOILAGE IS NORMALLY ANTICIPATED OR COMMON SPOILAGE IS SPECIFICALLY IDENTIFIED WITH A
TO ALL JOBS PARTICULAR JOB

Spoilage here is considered as a normal characteristic Spoilage and Defects → Occasionally experienced in
of a production process production process → Allowance for spoilage should
not be included in the computation of POHR
Companies include a provision for normal spoilage cost
in its Budgeted FOH
Cost of Normal Spoilage → Spread over all jobs in A. Actual Spoilage Occurs → Almost same treatment
process with Spoilage is Normally Anticipated or Common to
All Jobs
The only difference is that the Allowance for Spoilage is
A. Actual Spoilage Occurs → Journal Entry (Completion
not included in the computation of POHR in Spoilage is
of the Process):
Specifically Identified with a Particular Job → while it is
Spoiled Goods Inv (MV of Spoiled Units) XXX
included in Spoilage is Normally Anticipated or
FOH (Unrecovered Costs – Blncng Fig) XXX
Common to All Jobs
FGI (Good Units) XXX
WIP XXX
Computation: B. Spoilage Due to Customer’s Intervention
Units Spoiled XXX
Customer changes the specifications of a job order →
x Production Cost per Unit X
Causes some spoilage
Total Production Cost of Spoiled Units XXX
- Recoverable Amount (MV of Spoiled) (XXX) Customer will shoulder the cost of reworking in case of
Unrecovered Cost (Charged to FOH) XXX defective jobs, or shoulder the loss in case of spoilage
Spoiled Goods Inventory Account → Charged (Debited) Journal Entry (Completion of the Process):
with the MV of Spoiled Units Finished Goods (Good Units) XXX
Spoiled Goods Inv (MV of Spoiled) XXX
FOH Account → Charged (Debited) with the
WIP XXX
Unrecovered Cost
MV of Spoiled Goods → Debited to Spoiled Goods
FGI Account → Charged (Debited) with the Cost of
Inventory
Good Units
Cost of Goods Units → Debited to FGI
Unrecovered Cost → Remains with the Job (in WIP)
B. Production Results to Defective Work → Journal
instead of charging it to FOH
Entry:
FOH (Cost of Rework) XXX
DM XXX
DL (Accrued Wages) XXX C. Defective Work Due to Customer’s Intervention
FOH (Applied) XXX Action of a customer results to a Defective Work →
POHR → Already includes an Allowance for Spoilage Customer is charged with the cost of reworking

Actual Costs of Rework → Charged (Debited) to FOH Cost of Rework → Charged to WIP
Account instead of WIP Account Journal Entry → Just like the previous example for
Defective Work but replace the FOH debit with WIP
debit

Cost of Reworking → Increases the cost of the job and

the cost per unit of produced goods
D. Defective Units are Normal in Any Production
Process

Cost of Reworking → Charged to FOH

Basis of Billing the Customer → Original Cost of
Production

Journal Entry:
FOH (Cost of Rework) XXX
DM XXX
DL (Accrued Wages) XXX
FOH XXX

E. Defective Units Due to Employee’s Fault which is

Abnormal

Cost of Reworking → Charged to Loss from Spoilage →

Period Cost
Journal Entry:
Loss from Spoilage (Cost of Rework) XXX
DM XXX
DL (Accrued Wages) XXX
FOH XXX

Reference/s: Cost Accounting and Control 2019 Edition

by Gloria A. Rante