PAMANTASAN NG LUNGSOD NG VALENZUELA

JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS

ACCOUNTING SCHOLASTIC GUILD

JOB ORDER COSTING

Subjects
[MAC1]
S.Y 2022-2023

PREPARED BY:
Glifford Andrey A .Kadil
Rizza Restozo
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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

JOB ORDER COSTING

Prepared by: Glifford Andrey A .Kadil and Rizza Restozo

I. Costing Accounting

Cost Accounting involves Measuring, Recording, and Reporting of product costs. Cost accounting helps
companies identify areas where they may be able to better control their costs, and also informs pricing decisions
to ensure profitability. Cost accounting is defined as "a systematic set of procedures for recording and reporting
measurements of the cost of manufacturing goods and performing services in the aggregate and in detail.

II. Job Order Costing

The job-order cost sheet accumulates each job’s manufacturing costs. Each job-order cost sheet has a
job-order number that identifies the new job. A job-order costing system must be able to identify the number of
direct materials, direct labor, and applied manufacturing overhead.

job-order cost sheet

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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

I. Direct materials cost is assigned to each job through the use of a Materials requisition form. The form
includes the description, quantity, and unit cost of materials issued to each job. The form provides essential
information for assigning direct materials costs to jobs and also helps maintain proper control over a firm’s
inventory of direct materials
Materials requisition form.EXAMPLE:

II. Direct labor cost is assigned to each job through the use of a Job time ticket. The form includes the name,
wage rate and hours worked on each job. These forms are only used for direct labor.

Job time ticket Example:

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JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

III. Factory Overhead are assigned overhead costs with a predetermined overhead rate. Typically, direct labor
hours are used as the measure to calculate overhead. Sometimes, another driver, such as machine hours, is
used. In that case, the actual amount of that driver must be collected and posted to the job cost sheets.
Example: Depreciation of equipment and factory facilities. Rent, property taxes, insurance, and utilities.
Employment costs for supervisors, maintenance and quality control staff, and any other on-site employees
who aren't physically making signs. disposable gloves, personal protective equipment, tape, etc., may be
essential to a production line, but they are not part of the actual product created on that line.

IV. COMPUTATION FOR UNIT COST

Once a job is completed, the total manufacturing cost is calculated by totaling direct materials, direct labor, and
applied overhead. Then the grand total can be divided by the number of units to produce a unit cost
Add: Direct Materials Total Manufacturing Cost = Unit Cost
Direct Labor Total Units Produce
Factory Overhead
Total manufacturing Cost

V. Job Order Costing Flow

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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

VI. Manufacturing costs are assigned to Work in Process. Cost of completed jobs is transferred to Finished Goods.
When units are sold, the cost is transferred to Cost of Goods Sold.
Illustration:

Illustrations for Journal Entries:

Raw Material Costs

Illustration: Wallace Manufacturing purchases 2,000 at P5 per unit (P10,000) and 800 modules at $40 per unit (P32,000)
for a total cost of P42,000 (P10,000 + P32,000).
The entry to record this purchase on January 4 is:

Jan 4. Raw Materials Inventory 42,000

Accounts Payable 42,000

Factory Labor Costs

Illustration: Wallace Manufacturing incurs P32,000 of factory labor costs. Labor cost are P320 per hour and the total
labor hours are 100 hours.
The entry to record factory labor for the month is:

Jan 31. Factory Labor 32,000

Factory Wages Payable 27,000

Manufacturing Overhead Costs

types of overhead costs machinery repairs, indirect materials, and indirect labor.
Illustration: Using assumed data, the summary entry for manufacturing overhead in Wallace Manufacturing Company
is:

Jan. 31 Manufacturing Overhead 13,800

Utilities Payable 4,800
Prepaid Insurance 2,000
Accounts Payable (for repairs) 2,600
Accumulated Depreciation 3,000
Property Taxes Payable 1,400

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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

VII. Manufacturing costs are assigned to Work in Process with:

Debits Work in Process Inventory
Credits Raw Materials Inventory
Factory Labor
Manufacturing Overhead

Illustrations for Journal Entries:

Assigning Raw Material Costs

Illustration: Wallace Manufacturing uses P24,000 of direct in January, the entry is:
Jan 31. Work in Process Inventory 24,000
Raw Materials Inventory 24,000

Assigning Factory Labor Costs

The time tickets are later sent to the payroll department, which applies the employee’s hourly
wage rate and computes the total labor cost. If the P32,000 total factory labor cost, the entry is:

Jan 31. Work in Process Inventory 28,000

Factory Labor 28,000

Assigning Manufacturing Overhead Costs

Must be assigned to work in process and to specific jobs on an estimated basis through the use of a Predetermined
Overhead Rate. Based on the relationship between estimated annual overhead costs and expected annual operating
activity.
Expressed in terms of an activity base such as
•Direct labor costs
•Direct labor hours
•Machine hours

A predetermined rate may be established at the beginning of the year or may use a single, company-wide predetermined
rate and a different rate for each department and each department may have a different activity base.

The formula for computing the predetermined rate overhead rate is:

Illustration: Wallace Manufacturing uses direct labor cost as the activity base. Assuming that the company expects annual
overhead costs to be P280,000 and direct labor costs for the year to be P350,000, compute the overhead rate.

P280,000/P350,000 = 80%

This means that for every Pesos of direct labor, Wallace will assign a manufacturing overhead to a job.

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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

Illustration: Wallace Manufacturing applies manufacturing overhead to work in process when it assigns direct labor costs.
Calculate the amount of applied overhead assuming direct labor costs were P28,000.
P28,000 x 80% = $22,400

The following entry records this application:

Jan. 31 Work in Process Inventory 22,400

Manufacturing Overhead 22,400

VIII. Under- or Overapplied Overhead Aplication

The difference between the Actual actual and Applied overhead are adjusted at the end of the period
• A debit balance in manufacturing overhead means that overhead is underapplied.
• A credit balance in manufacturing overhead means that overhead is overapplied.

Any Year-End Balance in manufacturing overhead is eliminated by adjusting cost of goods sold.
Underapplied overhead is debited to COGS Overapplied overhead is credited to COGS

Illustration: Wallace Manufacturing has a P2,500 credit balance in Manufacturing Overhead at December 31.
The adjusting entry for the over-applied overhead is:
Dec. 31 Manufacturing Overhead 2,500
Cost of Good Sold 2,500

Advantages
•More precise in assignment of costs to projects than process costing.
•Provides more useful information for determining the profitability of particular projects and for estimating
costs when preparing bids on future jobs.

Disadvantage
•Requires a significant amount of data entry.
•The cost of goods manufactured schedule now shows manufacturing overhead applied rather than actual
overhead costs.

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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

Illustrative Problem:
The Kadil Company has the following balances as of January 1, 2019
Materials P 4,900
Work in Process 4,600
Finished Goods 6,000
Accrued Factory Payroll 200

Details in three inventories are:

Materials
Material A-600 units at P5.00 P3,000
Materiial B-350 units at P4.00 P1,400
Indirect Materials P500 P 4,900

Work in Process – Job No. 101

Materials:
A-200 units at P5.00 P1,000
B-175 units at P4.00 P700 P1,700
Direct Labor:
290 hours at P5.00 P1,450
Factory Overhead
100% of the direct labor Cost P1,450
P4,600
Finished Goods
Commodity X 2000u units at P.3.00 P6,000

The Transaction for the month of January, 2019 are as follows:

1. Purchase for the month of January – Materials A – 600 units at P5.50, Material B – 800 units at P5.00
and indirect materials – P700
2. Materials requisition and issued on the FIFO basis amounted to P7,000 and Indirect materials P1,000
3. Materials returned to supplier, 70 units at P5.00
4. Payroll during the month amounted to P10,300 Direct labor Cost P8,000 and Indirect labor cost of
P2,300.
5. Factory overhead is applied at 100% of direct labor cost
6. Jobs completed during the month Job 101 for 3,000 units and Job 102 for 5,000 units.
7. Sales during the Month on FIFO Basis 4,000 units at P6.00 and 4,000 units at P4.00

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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

Materials Work in Process

Beg. P4,900 2.) P 8,000 Beg. P4,600 6.) P 8,000
1.) P8,000 3.) P 350 2.) P7,000
4.) P8,000
5.) P8,000
End. P4,550
End. P6,000

Finished Goods Cost of Goods Sold

Beg. P6,000 7.) P 22,000 7.) P 22,000
8.) P21,600

End. P5,600

Factory Overhead Control Factory Overhead Applied

2.) P 1,000 5.) P8,000

4.) P 2,300
9.) P 4,800

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 PAMANTASAN NG LUNGSOD NG VALENZUELA
JUNIOR PHILIPPINES INSTITUTE OF ACCOUNTANTS
ACCOUNTING SCHOLASTIC GUILD

Kadil Company
Cost of Goods Sold Statements
For the month ended January 31, 2019

Direct materials:
Materials, January 1 P 4,900
Purchases P 8,000
Less: Purchase Returns P 350 P7,650
Total available for use P 12,550
Less: Materials, January 31 P4550
Indirect Materials P 1,000 P5,550 P7000
Direct Labor P 8,000
Factory Overhead P 8,000
Total Manufacturing Cost P 23,000
Add: Beg. Work in Process P4,600
Cost of goods put into process P 27,600
Less: End Work in Process P 6,000
Cost of Goods Manufactured P 21,600
Add: Beg. Finished Goods P 6,000
Total goods available for sale P 27,600
Less: End. Finished Goods P 5,600
Cost of goods sold – Normal P 22,000
Add: Under Applied Factory Overhead P 100
Cost of goods sold – Actual P 22,100

The Under applied are computed as follows:

Actual Factory overhead P8,100
Less: Applied Overhead P 8,000
Underapplied overhead P 100

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