CASTILLO, MARGAUX JULIENNE R.

NCST : MANAGERIAL : TTH 11:30 – 1 PM

PRELIM TERM
CHAPTER 2

JOB ORDER COSTING

It is a system for allocating costs to groups of unique products
JOB ORDER COST ACCOUNTING SYSTEM
- is a product costing system used by companies making one-of-a-kind or special order products.
- In such system, direct materials, direct labor, and factory overhead costs are assigned to specific
job orders or batches of production.
- In job order costing, each job is an accounting unit to which materials, labor, and factory
overhead costs are assigned by means of job order numbers

EACH ORDER IS BASED ON DIFFERENT SIZES, LAYOUTS, WOOD CHOICES, FINISHES, HARDWARE,
INSTALLATION COSTS, CUSTOMER PREFERENCES, ETC.
• NO TWO ORDERS ARE ALIKE, SO THE TOTAL COST OF EACH ORDER WILL DIFFER AS A RESULT.
• A single order might involve a homeowner updating her kitchen for a new look.
• A batch order might be processed for a home builder who is constructing 10 identical homes and
therefore requires 10 of the same sets of cabinets.
• EACH SINGLE OR BATCH ORDER IS REFERRED TO AS A JOB AND IS ASSIGNED A UNIQUE
IDENTIFICATION NUMBER, SUCH AS “JOB 15”.

A subsidiary record (job cost sheet)

is needed to keep track of all unfinished jobs (work in process) and finished jobs (finished goods).
The cost of each order produced for a given customer or the cost of each lot to be placed in the stock is
recorded on a summary called a job order cost sheet, or merely a cost sheet.
This master sheet is designed to collect the costs of materials, labor, and factory overhead applicable to
a specific job.

THE THREE COST OF PRODUCTION

 Work in Process
o (Direct materials + Direct Labor + Factory Overhead) = Total Manufacturing Cost
DIRECT MATERIALS
- It becomes an integral part of a manufactured product that is sold to a customer. They are
requisitioned (asked for) and brought from the stockroom to the production area so that they
can be worked on.
- This journal entry represents the first of the three debits to the Work in Process account.
DIRECT LABOR
- It involves work done directly by factory laborers on manufactured items that are sold to
customers.
- This journal entry represents the second of the three debits to the Work in Process account.
FACTORY OVERHEAD
- This account is used to record all factory expenses except direct materials and direct labor.
Rather than Supplies Expense, Maintenance Expense, Depreciation Expense, Insurance Expense,
Wages Expense (indirect), etc., the Factory Overhead account is used to substitute for any
expense incurred in the factory. Factory overhead costs are indirect because they cannot be
specifically traced to particular jobs, but are instead incurred in the factory as a whole.