AKSUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMEMT OF ACCOUNTING
BANKING AND COOPERATIVES
ACCOUNTING PROGRAM

ASSESSMENT OF JOB ORDER COSTING SYSTEM AND APPLICATION

(CASE STUDY OF SABA DIMATNTIONAL STONE ADWA)

PREPARED BY: Mengistu Yirga

ID No: AKUR/ 0769/02

ADVISOR:
Goitom G. (MSC)

AKSUM
ETHIOPIA
 Table of content
TOPIC page
Cover page-----------------------------------------------------------------------------------------
Title page-------------------------------------------------------------------------------------------
Declaration ---------------------------------------------------------------------------------------
Acknowledgement-------------------------------------------------------------------------------
Abstract ------------------------------------------------------------------------------------------
CHAPTER ONE
Introduction---------------------------------------------------------------------------------------
1.1 Back ground of the study---------------------------------------------------------------
1.2 Statement of the problem---------------------------------------------------------------
1.3 Objective of the study ------------------------------------------------------------------
1.3.1 General Objective ------------------------------------------------------------------
1.3.2 Specific objective-------------------------------------------------------------------
1.4 Significant of the study ---------------------------------------------------------------------
1.5 Scoop of the study ---------------------------------------------------------------------------
1.6 Research design and Methodology --------------------------------------------------------
1.6.1 Sampling techniques ---------------------------------------------------------------
1.6.2 Method of data collection----------------------------------------------------------
1.6.3 Method of data analysis------------------------------------------------------------
Chapter two
Contents page
CAHPTER TWO
2. Review of related literature ---------------------------------------------------------------
2.1 definition of cost and cost accounting ----------------------------------------------
2.1.1 definition of cost -----------------------------------------------------------
2.2 definition of cost accounting------------------------------------------------
2.3 Use of cost accounting ---------------------------------------------------------------------
2.4 Classification of cost -----------------------------------------------------------------------
2.3.1 Cost management function -----------------------------------------------------------
 2.3.2 Direct cost and indirect costs -------------------------------------------------------
2.3.3 Product costs and period costs ---------------------------------------------------
2.3.4 Classification of cost based on their behavior ----------------------------------
2.3.5 Classification based on their degree governing ---------------------------------
2.3.6 Cost classification based on their relevant to ------------------------------------
2.4 Responsibility centers ----------------------------------------------------------------------------
2.4.1 Cost centers --------------------------------------------------------------------------------
2.4.2 Profit center ------------------------------------------------------------------------------
2.4.3 Enactment center ------------------------------------------------------------------------
2.4.4 Revenue center ---------------------------------------------------------------------------
2.5 Cost system ----------------------------------------------------------------------------------------
2.5.1 Actual cost system---------------------------------------------------------------
2.5.2 Standard cost system ------------------------------------------------------------
2.6 Costing system -----------------------------------------------------------------------------
2.6.1 Job costing system --------------------------------------------------------------
2.6.2 Process costing system ---------------------------------------------------------
2.6.3 Operation costing -------------------------------------------------------------------
2.7 Job order costing system and application --------------------------------------------------
2.8 benefits of job costing --------------------------------------------------------------------------
2.9 basic records of job order costing ------------------------------------------------------------
2.10 The follow of costs in job order costing ---------------------------------------------------
2.11 General journal entries in a job order costing -------------------------------------------
2.12 Job order cost orders --------------------------------------------------------------------------
CHAPTER THREE
3. Analysis and Interpretation of Data----------------------------------------------------------
3.1. An overview, costing system of Saba Dimensional Stone------------------------
3.1.1. Saba Dimensional Stone cost system------------------------------------------
3.1.2. Basic records of Saba Dimensional stone------------------------------------
3.1.3. Flow of cost in Saba Dimensional Stone--------------------------------------
 3.1.4. Responsibility centers of Saba Dimensional Stone-------------------------
3.2. Analysis of Data on a sample job order operation---------------------------------
3.2.1. Material cost-------------------------------------------------------------------------
3.2.2. Labor cost-----------------------------------------------------------------------------
3.2.3. Factor overhead cost-----------------------------------------------------------------
3.2.4. The general journal entry system of Saba Dimensional Stone------------
CHAPTER FOUR
4. Finding, Conclusion and Recommendation------------------------------------------------
4.1. Finding-----------------------------------------------------------------------------------------
4.2. Conclusion ------------------------------------------------------------------------------------
4.3. Recommendation----------------------------------------------------------------------------
 Chapter one
1. Introduction
1.1 Back ground of the study
Cost activating is a Brach of accounting focusing on the determination and control of costs. It is
primarily concerned with the cost of manufacturing produces booth higher attention is bossing
given to distribution of costs, cost accounting is also measures and reposes financial and other
information’s related to the organizations cautions or consumption of resources.
Organizations forms companies and investors give mach consideration about their costs.
This is because costs have a major or determined factor to decide whether to continue, expand
or to terminate line of very much concerned on how to reduce costs of that organizations
perfection. Its owner that useful managers should keep close witch on costs because, it is
necessary for their survival cost accounting measures, reports and analyses the various
elements of direct and indirect costs, the application of cost accounting measures. Reports and
analyses the various elements of direct and indirect costs. The application of costs- accounting
involved comprehensive set of principles, method and techniques to determine and
appropriate analyses of cost to suit various part of the organization stretcher with in the
business. So there is great need o study and give more concern especially for cost and costing
systems and applications that are wed for the reason of obtained the cost of product or service
are job order costing system and application rather than dividing total costs by many thousands
of like units, we must divide total cost few unlike units .
This job order costing system and application involves certain problem of recording.

1.2 Statement of the problem

All kind of organization manufacturing firms several companies and none profit need some
from costs accounting. The part of accounting system that measures costs for propose of the
Management decision-making and finical reporting the main task of this study is to invest get
the application of job order costing system and application and its implications. Manufacturing
Overhead must be considered along with direct materials and direct labor in a determining unit
Cost to units of production is often a difficult task. Through its analyses the researcher will also
tries to state the limitation and for mar dance of the job order, costing and application in the
working environment of the organization for propose of the making prices and through
analysis in the dimensional. To understand the job order contain and application of costing
method and the show of the positions designed which need another at the end of this study are
as follows
1) Lease the company appropriate costing system and application
2) The method how product cost is determined and when and it whit department is of
determined and when and it department is of determined?
3) The operational problem of job order application in the Saba dimensional stone;
4) The application of direct material and direct labor in to the production and its
implications;
So this study is expect find out problem associated with cost accounting system and practice
and it was be evaluated on this also possible solution were expect to be given for to be given
for the problems here with.
1.3 Objective of the study
4.1.1 General objective: - of the paper is to steady the job order costing system and
application Saba dimensional stone.
4.1.2 Specific objective:- of the researcher ere :-
 To compare the theoretical view of the job order costing and application
with the practices application of the company job order costing system and
application.
 To understand how cost accounting is useful in the achievement of the
company’s goal.
 To see the stock recording practice and hold the cost record are maintain.
 To see current problem of the company cost amounting system.

4.2 Significance of the study

The study would be made with special reference to Saba marble. The study had be
concerned job order costing system application and identity if there is problem in controls
 cost and identify if there is problem in controlling cost system application and identity if
there is problem in controlling cost and recommended some suggested solutions, The
reference the study were conduct to evaluate the cost system and application Saba
dimensional stone. For their taking the result of this study as aspiring board and any
international individual can extend the study as identity, make specific cost control system.
And the company (Saba dimensional stone)
 Might improve the weakness of costing system by the finding;
 Help to know the Asotin system practical in the company.
 To the researcher will;
 Enables to know the practice & point of view rather than knowledge it the
practical point of view rather than knowledge it theoretically.
 Feminize the new graduate student with system and mechanism of cost acc
counting system.
 To correct and mostly what he leered in the class and what is done actually in
the outside environment.
 More ever it will proved and experience
 To if will serve as a reference to others researcher in the same topic.
4.3 Scope of the study
The scup of this research is limited to Saba dimensional stone particularly cost and sales
department. The data used only include for jobs a sake prevent active of the whole production
of the company.
1.6 Research design and methodology
As a research, design constitutes the whole, research to be carry out it includes d/t
classification to be use in the process of collecting the data. The methods of data collection
primary used ask primary information’s well gather by interviewing company personal who are
impossible for the study under taken. From interviewing, the researcher gathered information’s
like what is the major costs incurred for the organization, what are the controlling for direct
material, direct labor they own and factor over head cases , how the pre determined factor
over head rate is developed etc. In addition, direct observation of the actual production of the
researcher gather information’s about how requisition and application of direct material and
direct labor in to the production process.
The second hand informatics is gathered from various company records. This includes
information monthly summary of materials labor and the activity report as whole, job
customers for each job cost sheet for each job as material acquisition from the employ time
ticket from the secondary surceases the researcher will find out the actual cost incurred versus
the total cost estimated.
1.6.1 Sampling techniques
The sample techniques used in selected this take judgment al sampling. The data required to
conduct the study available in cost accounting department and fells department that directly
required the seaport of cost related information. All it can be sold that the responsible is as
accuse study, as the performance of single organization was comprehensively evaluated.
1.6.2 Method of data collection
To acquire the relevant information for the study these researcher is use both primary and
secondary data. The primary data is collect through interview and personal observation.
Whereas, the secondary data collect through books, manuals and the relevant information
from the organization.
1.6.3 Method of data analysis
After the necessary data for the study is collected, the celestial data will be processed,
summarized, organized and inter pated by using tables and ratios.
 Chapter two
2 review related literature
2.1 Definition of cost and cost accounting
2.1.1Definition of costs
Cost is the exchange price of procurement of goods cervices cost those economic sacrifice
expressed in monetary value to obtained an asset or group of assets. Such as cost may be
historical cost, current cost, fetcher costs imputed costs, etc.
By accountants defines as, a recourse surfaced forgone to achieve specific objective. it usually
measured as the monitory amount that must be paid to acquired good and services , it also
defines, the amount of expenditure of expenditure ( actual or notional) incurred, or
attributable to , aspect tied thing on activities
(Horn ran: 2006, 13rd).
Cost can be define as, the satiric made, usually measured by the resources given up, to achieve
a particular purpose.
(Hilton: 2006, 3rd)
2.1.2 Definition of cost accounting
Cost accounting, is a quantities method that carom valuated, classifications, summarize and
interpreters finances information for three major purpose
o ascertainment of cost of product or services
o operational planning and control and
o decision making
Cost accounting is one of the Brach of accounting and is predominate men for meeting the
informational need of the management.
Managers need cost information for informed decoction making. Cost accounting is the part of
management accounting that established budget and standard cost and actual cost of
operation, process, department or products and the analysis of variances, profitability or
 Social use funds (Banerjee: 2006)
2.2 Uses of cost accounting
Many different people in an organization use cost accounting. it also used in cost accounting
information , perform once evolution decision making financial reporting and tax reporting are
funding particularly all business . Cost information contracts, such as those pulse a profit
contracts, such as those sometime funding the defense industry and for other special contracts
such as those sometime founded the defense industry ,and for the other spall contract and
regulatory purposes . The preparation of cost and related data for management to use in
performance evaluation or decision-making. (Michaw, Maher et, al: 1987, 2Ed)

2.3 Classification of cost

Cost can be classified in verity of ways depending on the purpose for which information is
intended. This classification help to understand better what is meant by the word cost.
2.3.1 Cost by management function
In amount factoring cost are divided two major categories accounting to the functional
activities they are associated with:-
1) Manufacturing cost (2) non- manufacturing costing also called operating expense.
I) Manufacturing costs are those costs associated with the manufacturing costs are subdivided
in to aloe head. Direct material is all materials that are come an integral part of the finished
product.
Example is the steel used to make an automobile and the wood to make furniture.
Direct labor is the labor directly involved in mélange the produce. Examples of direct labor costs
are the wages of assembly worker on an assembly line and the indirect labor, such as wages of
supervisory personal factory overhead can be defined as part of factory over head defined as all
costs of manufacturing except direct materiel and indirect materials and direct labor. Some of
the many examples include depreciation, rent taxes insurance, fringe benefits, payroll taxies’
And cost of idle time. Factory burden, many overleap with their categories direct materials and
direct labors combined are called prime costs. Direct labor and factory over head companied
are culled prime costs are incurred convert raw material in to finished goods. (Hilton: 2006, pp,
42,3rd Ed)
Non- Manufacturing costs
None man factoring costs ( or operating express ) are sub divided in to selling , general , and
administrative expenses selling expenses are those also coated with obtaining sales and the
delivery of the product . Example, Are diverting and sales commissions. General administrative
expenses selling expenses are those also coated with obtain sales and the delivery of the
product. Example, Are advertising and sales commissions. General and administrative expenses
in cruder those incurred to perform general and administrative activates. Example is executive’s
salaries and legal expenses (Hilton: 2006, pp 43, 3rd Ed)
2.3.2 Direct costs and indirect costs
Cost may be viewed as either direct of indirect, based active of costing, such as products, jobs,
department gale territories.
Direct cost cash be directly traceable to the cost objective for example, if the object of costing
under consideration is a product line, the material and labor involved in the manufacturing of
the line would both be direct costs are not directly identifiable to any patriots, or jobs called
common costs or joints costs are also indirect costs.
National advertising, that Benet its more than one product and sales territory is an example of
indirect costs.
(Raeburn: 2006, pp, 28-29, 5th Ed)
2.3.3 Product cost and period costs
Product costs are inventorially costs, identified as of inventory on head. They are tatted as an
asset until the goods they are assigned to be sold, at that time they become the expense or cost
of good soled.
All manufacturing costs are product costs.
Product __________ asset (inventory) ____________Expense (cost of goods sold) period costs
are all expired costs that are not necessary for production and hence are charged agilest sales
raven use is eared, selling , and general and administrative expense are period costs.
Period cost _______expense
2.3.4 Classification cost based on their behavior
Variable cost increases in total proportionally with an increase in activity. Variable cost includes
cost of direct materials, direct labor, and some supplies some indirect labor etc----
Mixed (or semi variable) costs: - cost display, both fixed and variable characteristics. For
example includes the cost electricity, water, gas, fuel oil, some supplies etc.
Fixed costs: - cost that remains the same in total as activates in ceases or deceases. For exam
Fixed factory over head in clods items as supervision, dépêche coition, rent, prosperity
insurance and property taxes, (UsrYetal: 1988, pp, 294,9thed)
2.3.5 Cost classification based on their degree of averring unit cost is simply the
average cost which is the total cost divided by the total volume in units , Alternatively the unit
cost is the sum of (a) the variable cost per unit, and (b) the fixed cost per unit . it is important at
to realize that the unit cost declines as volume in ceases , since the total fused costs that are
constant over arrange of activity are being spread over a large number of unit.
Unit cost =total manufacturing cost
Number of unit manufacturing
2.3. 6 classification d on their relevant to planning con decision making
A) Controllable cost:- these are the costs which can be influenced by the action of individual in
an enterprise within a given time; virtually all costs will be controllable by somebody in an
enterprise . Thus, control of it an item of cost depends on the area of managers responsibility
and the time factory involved.
b) Standard costs:- cost are a predetermined cost that on the quantities of manufacturing in
put needed to producer output efficiently .
C) Differential cost: - is the d/t in costs between two or more alternatives. The d/t cost is
relevant to future decision,
D) Sunk costs: - are the costs of resources that have already been incurred whose total will not
be affected by any diction made now or in the fetcher.
Sunk costs are Considered irrelevant to future decisions also they are past or historical costs.
E) Locked in costs :- they are those costs which will be incensed in the future on the basis of
decisions that have already example the design of product has been conceited , it is difficult to
reduce direct martial costumes the design in changed.
F) Relevant costs: - are expected future costs that will dictator between alternatives this
concept is key to short and long-term decision.
G) Opportunity cists: - is the net benefit forged by rejected in making decision. It is a cost
incurred relevant to the alternative. There is always an opportunity cost involved in making
decisions, it is accost incurred relevant to the alterative given up (Bannered: 2006, pp 3-4 12 th
An organization is divided into department or segment, culled responsibility centers, also
known as const

2.4 Responsibility centers

An organizations is divided into department or segments, call responsibility centres,also known
as cost centre. Since every company has unique separation of authority and rponsiblity,
responsibility centers are known by verity of names.
2.4.1 Cost centers
Cost center unit with the originations in which the managerial is responsible only for costs.
Accost central has no control over sales or over sales or over the generating of revenue an
example is the production department of the manufacturing company . They performance of a
cost specified period.
2.4.2 Profit center
Segment of a lousiness organizations that is responsible for producing, and paper may consider
each of those three business separate profit center,
2.4.3 Investment center
Investment center – responsibility center witch an organizations that has control over revenue
cost, and investments. It is a profit those perform acne is evaluated based on the rerun earned
on invested capital. For example, returns on investment (ROI) Residual income (RI) are two per
romance measurement of an investment center.
2.4.4 REVENU CENTER
Revenue center are topicality responsible for marketing a product. Coincidently, the manager is
holed responsible for revenue or contribution margin valences. An example of a revenue center
is sport wear department of large department of a large department store in which the
manager is heir responsible for merchandise Seles,
Ribbon: 2006, pp 5 17-519,5th Ed)
2.5 cost system
Cost system can be classified as actual and standard cost system.
2.5.1 Actual cost system
Actual direct material and direct labor costs c are acumen vaulted in work in process inventory
as the cost are incurred . Actual production overhead costs are accumulated separately in an
overhead control account and are assigned to work in process inventory at the end of a period
or completion of production. Use of an actual system is generally considered to be difficult .
Because all production over head information must be available be for any cost allocation can
cane made to product s or services (reborn: 2006, pp 43)
2.5.2 Standard cost system
Units normal or standard are developed for direct material and direct labor of quantities and
( or costs material and direct labor of quantities and ( or costs over head isappliedto production
using ape determined rate that is considered the standard . these standards can then be used
to plan for fisher activates and cost in currency and to value inventories.
2.6 Costing system
Management accountant use also basic of costing on to assign costs products or services.
2.6.1 Job costing system
In this system, the cost object is alit or multiple vat distinct product or service called a job. Each
job uses a different amount of resources. The product or services is often a single unit, such as
aspcilized motive made at hibachis constriction project managed by Beach Corporation etc.
2.6.2 Process costing system
Are used companies that make large pupations of homo sinuous goods such as a breakfast
cared, candy bars, detergent, gasoline, and birds? Given mass manufacturing process , one unit
of out cane not be reading identified with specific input cost within given period making the use
of Ethel a weighted average or FIFOcost flow as- assuming neccery .
2.6.3 Operational costing. Operation cost in each stage of production or process is sepretal
costed.There after the cost of finished unit is determined; this is just able to those industries,
which are connected with mass production of keep tithes nature.
(Raeburn, et al: 2006, pp110, 6th E)
2.7 job order costing system and application
Job order costing system and application, cost are accumulated individually on appear basis job
is a single unit or group of units inatifiable as being system and application is used by entities
that makes ( perform) relatively small quantitiesrdistenct batches of indefinable , unique
product ( services) . For example, job order costing is appropriate for a publishing company that
process educational textbooks, accountably who placed tax returns, an archictural firm that
performs products development studies.
(BaRFIEID.Detl: 2003, pp.174.5th e)
Job order costing system and application is used when product are made based on specific
costumers orders. Each product deduced is considering job, cost is t by job, and services
rendered can be considered a job. For example services companies consider the cretin of
financial plan by a certified financial planner, or often estate plan by attorney, nubile jobs
Order costing system and application must cap tux and trace by the cost of pored costing each
job which include materials labor, and over head in a manufacturing environment .
Job order costing system and application is used instructions where many different producers
are produced each period.
For example closing factory would typically mode many different providers are produced each
period. For example closing system and applications costs are made to the jobs and then the
cost of the job are divided by the number of units in the job tarries at all average cost per unit.
Job order costing system and application is also extevisinsing used according firm, adverting
agencies and caper shops all use verity of job order costing system and application to
accumulate cost for accounting and billing purpose. The details here deal with amount catering
firm. The some once panda proceeded are used by many services than when it has only single
product or services than when it has only single product or services. Since the product different,
the cost topically did consequently, cost recorded must be mentioned for each distant or job.
(Http: // WWW. Cliffsnotes.come)
Job order costing system and application accumulates cost by job, by specific Bach of unit. Or by
specific unit or by specific Bach of unit. Therefore, the cost of individual job must keep
temperately. The job order sheet is like is like as subsidiary Léger account such as one that
would show the amount owed by firm to a particular supplier as opposed to account on the job
order cost direct material, cost of direct labor and cost of manufacturing over head attributable
to the job are recodes. The job cost sheet also provides the summary of total and unit cost of
input and out puts.
Job cost sheet are sources documents to record the required journal entries and post to the
general Léger accounts, Accounting for material when production is to be initiated. Production
order is prepared and approved by the approved by the appropriate officials) the production
order authorizes the manufacture of product and contain adscription of product to be
produced, the quintiles requires tempted date of cooperation, job order number date of
Production order is issued materials requisition frame Would be prepared, these source
document authorize the transfer of materials frame the ware house to the production
department to start production. The materials needed and distinguish between direct and
indirect materials,
(Usryetal: 1988, 9th e)
(a) A Means of controlling the flow of material in to production since the storeroom clerk
issue materials based on receipt property authorized material requisition from.
 (b) Source document to pass journal entries in the accounting records when materials are
issued from the store room the work-in process will be changed for direct materials the
following entry could be example
Work in process -------------------------------------xxx
Manufacturing head ------------------------------------ xxx
Material inventory ----------------------------------------xxx
The above journal entry should be passed to the general lager and the subsidiary ledger for
direct and indirect materials.
Accounting for labor costs
The direct labor cost may different from he/she worked on particular job on the time ticket,
The job time ticket is coasted using the employee’s rate of payment. The journal to record the
direct labor cost would us
Work in process ---------------------------------------------xxx
Manufacturing over head control --------------------------------xxx
Wages parable -------------------------------------------------------- xxx
To record the direct and indirect labor cost incurred.
The manufacturing overhead control is defied to indirect labor, (Usury et al; 1988, 9 th e)
Accounting for manufacturing over head (MOH)
Manufacturing overhead cost must be long with direct material cost and direct labor cost
inditermaing unit cost of products.
This includes such as rent, power heat, light insurance machinery equipment and other factory
faculties. Although such costs are not directly race able to specific job, they are part of the basic
input to perform a job.
The assignment of manufacturing overhead cost jobs competed or unit produced is often a
difficult task. This is because 1. MOH is on indirect cost, which cannot be traceable to product a
job.
2, MOH cost consists of many like items involve both viable and fixed costs.
Given these and other related costs.
Given these and other related problems the only acceptable way to avian manufacturing
overhead cost to particular job is to dose through an allocation process. The all action process is
done by completing an application rate, this is application rate is based on estimates of
overhead cost and estimated application base. The application base is the one that is a cost
driver the predetermined over head rate is comported by dividing the estimated units of
selected cost driver in to the itemized manufacturing over head cost the period, ( Usury et al;
1988,9th e)
Predetermined over head rate = Estimated manufacturing over head cost
Estimated units of cost driver
To compute the predetermined overhead rate the basic steps to be followed are

1/ selected an appropriate activity (cost driver)

2/ Estimate (budget) the total manufacturing over head cost of the period.
3/ Estimate (budget) the total unit of activity base (cost driver) for the period.
After the predetermined rate is computed them manufacturing over head cost is applied to
work in process based on actual unit of the activity base (application base) i.e. the rate
Multiplied by actual unit of application base for the period concerned the journal entry is
therefore
Work in processes inventory account ------------- xx
MOH control; -----------------------------------xx
(To apply MOH to production)
It is also possible to open separate account for manufacturing over head cost is applied to work
in process based on actual unit of the activity base (application base ) i.e. the rate multiplied by
actual unit of application base for the period concerned .
The journal entry is there for
Work in process inventory account --------------------------------------------xx
MOH control -------------------------------------------------------------xx
(To apply MOH to production)
It is also possible to open a separate account for manufacturing overhead-applied account.
When manufacturing overhead-applied account. When manufacturing overhead-applied
account is used, the manufacturing overhead would be used to accumulate actual
manufactured over head costs by the end the period (usually year) the MOH applied account
will be closed to the manufacturing over head control accounts. This is done by deviating the
applied accounts and crediting the control account. (Usury, teal 1988, 9 th)

Actual overhead costs are not assigned directly jobs; however, they are incurred and must be
paid. The journal entry to rescore overhead costs incurred not yet paid is Date xx

Manufacturing over head control -------xx

Account payable ----------------------------- xx

There are overhead costs, which do not require cash payment these are usually refer as cost
expired such costs, are depreciations and prepaid. The same journal entry is

Date xx MOH control ------------------------------------------- xx

Accounts deprecation --------------------------------xx

Prepared ------------------------------ -------- xx

After charging the entire three manufacturing cost element the job is completed the cost
should be transferred to finished goods inventory account.

The journal entry is finished goods ---------------------------xxx

Working process ------------------------xx

In job order costing system and application the finished goods inventory ledger is a controlling
accounts for jobs.

To complete the cost accounts cycle two-journal entry are necessary. These are
 1. To record the cost ( delivery of completed jobs to customers ) and
2. To record the cost production the goods (jobs) which are delivery to customer’s.
The sample journal entries are-
Date xx Accounts receivable (cash ------------xx
Sale -------------------------------------xx
Date xx cost of goods sold ------------------------xx
Finished goods xxx
(To recorded cost goods sold to costumers)
The complete cost accounting cycle for job order costing system and applications is
indicated in a fire cost accounting system parallels it’s firm operations.
The steps in atypical of operation of a firm make and sell its own products are.
1. Procurement: - RN and supplies needed for manufacturing are ordered, received
and stored; direct and indirect factory labor and services are obtained.
2. Predation: - RM are transferred from the store from to the to the factory labor tools
machines, prowl and other cost are applied to complete the product
3. Wave housing; finished goods are moved frame the factory to the wave house to be
hold until they are sold.
4. Selling ; costumers are charged
2.8 Benefits of job costing

Job costing is important for pricing, cost control prospective customers a ways ask for
estimated in advance, and they frequently warred jobs on competitive basis.

Consequently, supplier must be able to esthete costs accurately if they are to complete and
make a profit.

Job costing allowed public consults cants to accurately estimate the cost for each job
separately. (BARFIELD, 2003, 5th e)

2.9 Basic recodes of job costing system is the job cost the
The centre of a job costing system is the job cost the recorded (also called a sheet or order) All
costs of a particular product, service or batches of products are recorded on job cost recorded.
A file of job costs records for partially completed jobs products supporting details for the
worked in processes inventory accounting often simple called work-in process .A file of
completed job cost records comprise thetinished goods inventory account .

(BARFIELD; 2003, 5th e)

The job cost record summarizes information contained on assorted cement such as materials
requisition is records of materials issued to partum jobs. Labor time ticket (or time cords)
records the time particular direct labor spends on each job.

As each job being, a job cost records. Three classes of cost are applied to the units as they parts
through the departments.

Materials requisitions are the sources of direct materials costs, time tickets provide direct labor
costs, and budgeted overhead rates are used topically factory over head to products .

2.10 The flow of costing job order costing

The basic flow of costs in a job order system basins by recording the cost of material, labor and
manuifachering over head.

Direct material and in direct labor, costs are debited to the working process and debited to
the finished goods inventory accounts. When unit are sold, their costs are credited to finished
goods and debited cost of goods sold. (Usury, et, al; 1988, 9th e)

2.11 General journal entries in a job order costing

The following journal interviews are used accounts for the different manufacturing costs.

1. Purchase of material on cash

Material -------------------------- xx
 Cash /A/p ------------------------------xxx

2. Requisition of material in to production work in process ( direct material ) ---------xx

Factory over head control (in direct material) -----------xx

Materials ---------------------------------xxx

3. Labor cost incurred ---------------------------------xxx

Manufachring waves --------------------------xx
4. Assignment of labor costs to production :
Working process (direct labor) ---------------------------- xxx
Factory over head control (in direct labor) ------------------------xx
Wages expense --------------------------------------------------------------xx
Manufacturing wages --------------------------------------------xx
5. Manufacturing over head cost :
Factory overhead control -------------------------------xxx
Accumulated depreciation --------------------------------- xx
Prepaid insurance ------------------------------------------------------- xxx
Utility expense --------------------------------------------------------xxx
6. Appling over head to production ;
Work in process ----------------------------------------------------- xxx
Factory overhead applied -------------------------------------------xxx
7, trans faring of completed goods:
Cash ---------------------------------------------xxx
Sale --------------------------------------------xxx
Cost of goods sold ------------------------------ XX
Finished goods ---------------------------------------- xxx
(BARFIELD. et ,al; 2003, 5th e)
2.12 Job order cost cards
All manufacturing cost are debated to the work in process needed the like those costs to
specific jobs. The solution is subsidiary elder made up of job order cost cadres. For each job
being working in processes inventory control, they reclassified by job and recorded on the
appropriate job order costs cards. Each card has space for direct materials direct labor and
factory overhead costs. It also includes the number products specifications, and the name of
the customers, the date of the order, the project speciation, and the project complication date
order the project specifications, the project complication Date, and a cost summary. as each
department in cures material and labor costs, the individual job order cards for in complete
jobs make up the subsidiary ledger for the work in process in venture control account .

To ensure currents, the ending balance in the work in process inventory control account is
compared with the total of the cost shown on the job – order cost cards.

(BARFIELD, et, al; 2003, 5th e)

CHAPTER THREE
3. Analysis and interpretation of data
This part of the study comprises two types of analysis. The first part is the interpretation of
data. Which cave of the red from interview and the second part of the dimensional
operation.
3.1 An overview costing system of Saba dimensional stone
Costing system is vital role for business because it is used for planning product costing, cost
control performance evaluation and decision making. Saw dimension stone is A
manufacturing Company, and a cost is not wall accumulated in a proper manner. And the
organizational found job order costing system and application as a best way of
accumulating individual costs. As a result stone use job order costing system and
application.
The costing of system of organization is not well organized in terms of product cost of
determinations of as well as control in the dimensional operations. But every entity has
their own rules, political and producers. For instance the store manager will not start
production without proper allocation and issuance or direct material and direct labor
simultaneous in general. The general manager will not approve a job to be under taken is
the sales department did not estimate or cost of a product with a proper with manner/
producer and with a current cost of material.
3.1.1. Saba dimensional stone cost system
In Saba dimensional stone, determination of a product cost is given due considerations. As
principle costs should be actual or standard for organization like Saba dimensional stone is
very difficult to apply actual cost. Because Saba uses job order costing system and
application, in job costing system the cost object is a unit or multiple units of distinct
product or service. As a result the cost system cost should be actual or standard. For
organizational like Saba Dimensional stone reason to apply actual cost.
The product cost is determined in advance of production in the sales department. Generally
the products operations and process are casted using standard for both quality and
monetary a mounts. For instance the cost of a material and labor costs are developed in
advance.
This mechanism helps the dimensional to calculate the profit margin at a job in advance.
The difference be taken the estimated or pre-determinedly calculated costs will be again to
the organization. But if the reverse is true it will be a loss to the dimensional.
3.1.2 Basic records of Saba Dimensional stone
In the organizational, there is severs records applied but the main the basic records are, job
card cost sheet.
Employee time ticket and material requisition. the job card cost sheet records include, the
work order number the type of work ordered, the quality and the customer name as well
the total price of the product and shows the data ordered/when the product are in
operation this records plays a vital role, and products that are finished will be transferred
to finished goods inventory. The material requisition is used to record the issuing and
transfer for materials to the production department for each job order from the store from
of the organization.
The employee time ticket is used to record the time that the employee spent to job order.
This record used to record which employee worked on which job as well as the over time
worked. For the above three logistic records there is authorized person who keeps those
records for each.
3.1.3 Flow of cost in Saba dimensional stone
The flows of costs are a basic and major tool for internal purposes. In Saba dimensional
stone, the flow of costs starts from customers order. The customer will ask the type,
amount quality and the time. The good to be delivered to him/her precisely. After client
specifies proposal it will give the perform for the organizations Saba department.
The sales department after receiving the Performa from the clients starts estimation the
cost of the production. After competition of estimation Performa involve will be prepared
and send to the client. At the end if clients agree with the proposal price send job for the
company. When the job order sheet end inputs will be issued. The job order cost sheets
include quality size and code of the job to be estimated. And labor cost will be allocated for
production department based on the estimated figure. The stores will developed direct
materials transfer sheet transfer the amount of materials and the type of material needed.
The cost centers will open a cost sheet and accosted direct labor for production
department.
The finance department will calculate cost of direct labor by using expected working hours
to each cost centers the payroll rate is a major aid for calking direct labor by using expected
working hours to each costing direct labor costs.
There is no standard for the development of over costs. The stores will issue indirect
materials cost to the pre determined over head cost rate and the finance department will
allocate indirect and other indirect costs. After the direct material, direct labor and applied
over head costs develop they will enter to the work in process which is to the production
department.
When the products are fully or partially completed (finished) they will enter to finished
goods inventory to the cost of goods sold. The 100% finished goods are delivered to the
customer by the specified data at the specified quality.
3.1.4 Responsibility centers of Saba dimensional stone

The organizational is divided in to department segment called responsibility

center (cost center). This cost center use for accumulation of costs as well as
the base of estimable direct labor hour and direct material. This cost a centers
are the company’s smallest area of responsibility. For the organizations
dividing tasks in to smallest area of responsibility will enable its activities
more legible formal and makes the interval control structure very effective
and stronger.
The organization cost centers are dividing in to eight responsibility
areas this are:-
Manual composition mechanical composition camera letter press, offset, well
offset binding and computer. For each cost center there is no pre- determined
over head rate, as a result over head rate is developed weekly by taking actual
machine hour can labor hour used the calculation of over head rate cost for
the center, off set, letter press, web offset, and mechanical composition is
dividing over head labor rate cost for the cost center offset letter press, web
offset mechanical composition is dividing.
 Budgeted over head cost /Machine hour

And for other costs center camera computer manual composition and binding
the overhead rate is developed by dividing Budgeted over head cost/ labor
hours
Each cost centers are inter dependents of each other and explicit as well as the manual
composing will make ready the product to be interred in to the production operation. The
mechanical composing center and make ready to camera purpose. After the pictures and
texts are exposed to plants and prints the pictures. The binding of department received the
printed products and bind and as well as pack and make them ready to be delivered to the
customers. The computer section almost participate in every department work, for
example it may participate in designing before camera work, it may participate in the
estimation phase composing phase is well as the end delivery phase composing phase as
production operation.

3.2 Analyses of data on a sample job order operation

This part discusses about the flow of costs of Saba dimensional stone bristly by taking a
sample of jobs. In the cost and budget section will perform activities which are related to
verifying of and appropriateness of each cost section. Because of the similarities of the data
the researcher obliged to select randomly four (4) out of finite (15) jobs processed during
the period under study for the analysis and interpretation purpose. The job are ordered
from different customers at different period, and the clients are Tigist Tesema, Kegna,
condominium cooperative, Akir construction, Ato Seid Damtew.
All the four jobs have their own separate order sheet with their jobs order number.
No Jon order Type of work Date Date Customer is name
no Started completed
Job-1 03520 TOGOGO 10/05/04 25/07/04 TIGST TESEMA
Job-2 03514 MULTIC COLOR 24/04/04 24/06/04 KEGNA
CONDOMNIUM
COOPERAUE
Job-3 03511 ROTE GREEN 11/04/04 16/06/04 AKIR
 CONSTRAUTION
Job-4 03510 SEMEN PINK GRANITE 09/04/04 04/06/04 ATO SEID DAMTEW

It is observed that table shows that the jobs are started at different times and is completed
typically; these orders are first accepted in the order receiving department. The
responsibilities of these departments are to receive orders from customers and activate the
estimation of the total cost of each order. In this department current price list of each cost
center is available so that the estimation can be made easily and formally. For faciliting the
above estimation estimation from is needed state how much materials labor and overhead
is needed to produce a particular jobs this format includes customers job description
customer name, person to be contracted description of the job. Quality, size, cost of
materials and labor cost. This format is helpful and mandatory of preparation of job order
sheet for each customer orders. After the estimation of the materials and labor sheet for
each separate work order. This form it is sent to budget and finance department in which
cost are assigned to publish a particular product. This format is Avery help hull and
important sources document for each department in production unit because, when
materials are issued and labor is assigned, is based on this document that each department
operate. The job order sheet would include materials labor costs and other details is
concerning summery of materials labor and overhead cost as well as profit margin and also
transaction tax and value added tax (VAT) which gives the total cost /price/ of product.
Generally there are three major costs of the organizations, material, labor and applied
overhead costs.
The following paragraph discuses about the organizational manufacturing costs.
3.2.1 Material costs
In Saba dimensional stone material cost are estimated at the sales department. After
materials estimated for job, avouched will be prepared and the stone will transfer materials
from the store to the production with response to a material requisition.
The store from personal will record the assurance on the requisition from by inserting the
physical quantity data. Transfer of responsibility is neutrally evidenced by an authorized
personal signature or initials for this case the store room manager is the responsible. The
store issue voucher includes types of material, bin card number, and store requisition
number which department it is assigned the code description as well as the quantity and
total cost.
3.2.2 Labor cost
In the organizational a separate section is in place minor how product the and effective the
workers are while performing a particular job when estimation consider it each cost center
and calculate now much labor is needed to finished the work and in which section skelled
or unskilled labor force is required.
In the process section, works like design camera work, stripping place making and over
shipping as well as pointing the covers are performed here, in the dimensional section jobs
like making the text ready and organizational. The texts as well as folding saddle stanching
and setting of a dimensional mechanism are performed. As the binding section, which is the
last section in the labor cost estimation phase, erasing and make ready the product for
deliver will be performed.
By interviewing the organizational personal the researcher found out that no specific
estimation of the labor cost on monetary or time for each section to do the work.
For instance with the prepress section a design or camera may need a specified time
boundary, but in the dimensional this performance or activities are estimated in monetary
terms rather than hour rate, and customers are not provided with only the total cost
operation or product. This is due to the organizational cost system that is based on
currency that the cost of labor is estimated.
3.2.3 Factory over head costs
A factory overhead cost of the dimensional includes all manufacturing cost; expect
material and direct labor costs. There are factory overhead costs, this component be side
direct material and, labor costs. These are other in direct cost the costs are divided in to
two, fixed and variable costs. Fixed cost include depreciation of material, machineries and
plant, building, motor vehicle, insurance cost for workers component ion burglary and
house break age, fire and lighting and other fixed equipment. The variable cost on the
other hand includes vast types of costs, indirect material as well as costs which are
correlated with employee’s salary payment, miscellaneous land and municipality tax.
The organization has as system of redistribution of indirect costs to the eight cost centers.
The dimensional use applied factory overhead rate. The organizational common base for
calculating overhead costs includes direct labor hours and machine hours. When we look to
the flow of operation store each sample job of the organizational there is some similarities
and difference. First lest look the flow of operation of jobs order number 03520. System of
jobs variance analysis. The production started on 10/05/04 and completed on 25/07/04.
The type of job is TOGOGO ordered by Tigst Tesema and the total cost of the product is
96.616.80. The unit selling of price of the jobs is 852.00. The variance of material and labor
are favorable but there is no estimated of overhead cost and administration expense. When
we look to job order number 03514 we find multi color ordered by kind condominium
cooperative started on 24/04/04 and completed 24/06/04. The total cost of the job order
number 03511 ordered by Akir cons construction and the job rose green, started on
11/04/04 and completed on 16/06/04.
The total cost of the job is 72,636.24 and the unit selling price of 937.00.
When we look to job order numeral 035510 ordered by semen pink granite and started on
09/04/04, and completed 04/06/04. The type of the job is Ato Said material.
3.2.4 The general journal entry system of Saba dimensional stone
The organizational uses entry systems which are generally accepted by the job order
costing system. The purchases of material are two types’ i.e. local purchase and foreign
purchase.
When materials purchase from local material
/stock ------------------------ xx
Cash /account payable --------------------xx
When materials purchase from foreign markets, costs will be accumulated in good internist
(GIT) account. The cost may be the invoice price, insurance cost, tax, transaction cost
etc--------- until the material totally received and accumulated in the store.
/good in transit ------------------xx
Cash in bank ----------------------xx
After all the good are collected and putted in the
Store the /stock -------------------------xx
Good in bank-------------------------------xx
For the requisition of materials in the production the standard entry’s i.e. will be made
debiting w/p includes direct material indirect materials.
/WIP --------------------------xx
Stock -----------------------------xx
When the material put in to production
/WIP -----------------------xx
Contrd account -------------------x
When assignment of labor cost production this control account is a nominal account which
will be closed at the end of the year.
/finished good --------------------------xx
WIP------------------------------------------xx
Work in process includes partial completed goods when they delivered to the customers,
the following entry will be made.
/cost of good sol --------------------------xx
Finished goods ----------------------------------xx

CHAPTER FOUR
4. FINDING CONCLUSION AND RECOMMENDATION
4.1 FINDING
In this paper, based on the analyzed response and document, which is acquired from the
sample jobs and interviews the following major finding have been obtained.
1. There is no estimation regarding to administration and overhead cost.
2. There is no specific method of estimating labor cost.
3. There no flow of costs and well organized cost system for control purposes.

CONCLUSION AND RECOMMANDATION

4.1 CONCLUSION
Based on the interview conducted observation and the data analysis, the following
conclusion are made in line with the basic question.
Saba dimensional stone performs its operating by estimating cost of production in advance.
The estimating is made for the manufacturing cost i.e.
Direct materials and direct labor the researcher’s finding show through observation and
interview as well as the data analysis there are two vital problems.
1. There is a problem of a variance between the estimated amount of cost and the
actual cost.
2. Absence of specific formulas for estimating direct hour and its influences on the
production when the client company’s cost of product is estimated the company
faced a major problem of the company is also on the organization estimation
system. As the research analysis shows the direct labor is not specific method to
calculate cost of each centers. Therefore each cost centers would have performs
their operational based on an estimated working time or monetary term.

4.2 RECOMMENDATION
Generally cost should be estimated based on considering several variables. To overcome
the organization problems of variations between the estimated amounts verses the actual
results and poor estimation system the researcher recommendation that the company
should;
 Take in to accounts the previous period’s activities to reconcile the variance
between the estimated amount of cost and the actual cost.
 Train employed with in the estimate on department to enhance their knowledge
and competitive advantage.
 Supervise the production department employees for handing costs in better way.
 Readjust the estimation system, especially estimation of labor cost have
standardized and specific measument.
 From flow of cots chart for enhancing internal control.
 From a good inspection of workers activities in addition to the employees time
ticket.
 Predetermined the overhead cost and administration expense.
 Changes their traditional costing system in to modern costing system.

Reference
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