Since 1977

AFAR DE LEON/ DE LEON/ ALENTON

3207 – JOB ORDER COSTING MAY 2022

LECTURE NOTES
JOB ORDER COST SYSTEM – is used in those b. The file of job cost records for uncompleted jobs
manufacturing situations where many different products, serves as a perpetual book inventory and the
jobs, or batches of production are being produced each subsidiary ledger for Work in Process account.
period. Examples of industries that would typically use
job order costing include special-order printing, furniture 2. Materials stock card
manufacturing, ship building, and equipment a. These records are the perpetual book inventory
manufacturing. Job order costing is also used extensively of costs and quantities of materials on hand.
in the service industries. Hospitals, law firms, movie b. The file of material stockcards for unissued
studios, accounting firms, advertising agencies, and materials is the subsidiary ledger for Material
repair shops, for example, all use job order costing to Control.
accumulate costs for accounting and billing purposes. 3. Finished goods stock card
Because the output of firms involved in the industries a. These records are the perpetual book inventory
mentioned tends to be heterogeneous, managers need a of costs and quantities of completed goods
costing system in which costs can be accumulated by job b. The file of finished goods stock card for unsold
(or by client or by customer) and in which distinct unit goods is the subsidiary ledger of Finished Goods
costs can be determined for each job completed. Control..
Characteristics of a job order cost system: 4. Factory overhead cost record
1. It collects all manufacturing costs and assigns them a. These records accumulate detailed manufacturing
to specific jobs or batches of product. cost by department.
2. It measures costs for each completed job, rather b. The file of these records for the accounting period
than for set time period. is the subsidiary ledger for Factory Overhead
3. It uses just one Work in Process Inventory Control Control.
account in the general ledger.
5. Material requisition, time ticket, and clock card
Major source documents for job order costing a. The source documents for charging cost to jobs
1. Job cost sheet and departments
a. These records accumulate product costs of specific b. To aid in fixing responsibility for control and
units or small batches of units for both product usage of labor and materials
costing and control purposes.

ACCOUNTS PECULIAR TO JOB ORDER COST SYSTEM

GENERAL LEDGER

____________________________M A T E R I A L S________________________________

1. Beginning balance 1. Cost of direct materials issued to production

2. Purchases 2. Cost of indirect materials issued
3. Freight-in (using direct charging) 3. Costz of materials returned to suppliers
4. Cost of excess materials returned from
factory

SUBSIDIARY LEDGER

MATERIAL STOCKCARD______________

Received Issued Balance

GENERAL LEDGER
W O R K I N P R O C E S S________________

1. Beginning balance 1. Cost of goods completed and transfer

2. Direct materials issued to production to finished goods
3. Direct labor charged to production 2. Cost of excess materials returned to storeroom
4. Factory overhead applied to production

SUBSIDIARY LEDGER
JOB ORDER COST SHEET______________

Direct materials Direct labor Factory overhead

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GENERAL LEDGER
F I N I S H E D G O O D S__________________

1. Beginning balance 1. Cost of goods sold – normal

1. Cost of goods completed
2. Cost of goods returned by customers

The subsidiary ledger is similar to the materials stock card

GENERAL LEDGER

F A C T O R Y O VE R H E A D C O N T R O L____________

1. Cost of indirect materials used

2. Cost of indirect labor
3. Cost of other indirect expenses

F A C T O R Y O V E R H E A D A P P L I E D__________

1. Cost of overhead charged to production

C O S T O F G O O D S S O L D____________

1 Cost of goods sold – normal 1. Adjustment for over-applied factory overhead

2 Adjustment for under applied factory
overhead

Spoiled goods are partially or fully completed units with 3. If the scrap results from defective materials or
imperfections that are not correctable either because it is broken parts, it should be considered an internal
not possible to correct them or because it is not failure which management should try to reduce or
economical to correct them, eliminate.
1. Spoilage due to customer’s specifications - if
spoilage occurs because of actions taken by the JUST-IN-TIME means that raw materials are received
customer, then the loss on the spoiled units are just in time to go into production, manufactured pars are
charged to the specific job. The factory overhead rate completed just in time to be assembled into products,
does not include an allowance for spoiled work. and products are completed just in time to be shipped to
2. Spoilage caused by an internal failure – if customers.
spoilage occurs because of an internal failure, such
as an error by the employee or defective materials or Just-in-time (JIT) costing differs from traditional
machinery, the unrecovered cost of the spoiled goods costing with regards to the accounts used and the time of
should be charged to Factory Overhead Control. The cost recording. There are basically three major
overhead rate will include an allowance for spoiled differences.
work, therefore the predetermined factory overhead 1. Instead of using separate accounts for Materials and
rate will be higher. Work in Process as in traditional costing, JIT
costing combines these into Raw and In-Process
Defective units are units with imperfections that can be account.
corrected by reprocessing the units. 2. Direct labor is usually considered a minor cost item in
1. Rework due to customer’s specifications – if the a JIT setting so no separate account for direct labor
rework is caused by the customer, the additional is created. Direct labor and factory overhead are
costs incurred to reprocess the units are charged to usually charged to Cost of Goods Sold account.
the job and will cause an increase in the unit cost. 3. In traditional costing overhead is applied to products
2. Rework caused by an internal failure – if the as they are being produced and is recorded into the
rework is caused by an internal failure, the cost Work in Process account. In JIT costing overhead is
should be charged to Factory Overhead Control. not applied to production until they are completed.
When products are completed under JIT costing,
Scrap includes (1) fillings or trimmings remaining after conversion cost is charged to Cost of Goods Sold,
processing the materials, (2) defective materials that since the goods are sold soon after production is
cannot be used or returned to vendors, and (3) broken completed.
parts resulting from employee or machine failures.
1. If the scrap is directly traceable to a specific job, the
amount realized from the sale of the scrap is credited BACK-FLUSH COSTING SYTEM
to the Work in Process account and deducted from In simplified JIT accounting procedures, all inventories
the material cost of the job. are physically counted at the end of the period or upon
2. If the scrap is traceable to indirect materials, the completion of the manufacturing process (or upon sale of
amount realized from the sale of the scrap is credited the finished product). and cost allocation procedures are
to Factory Overhead Control. made only at the relevant point. This delayed recording
of the pertinent material and conversion costs has been
referred to as back-flush costing system. It focuses more

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on the cost contents of the inventories rather than on the BACK-FLUSH COSTING (JIT)
actual use of these resources in the production process. JEs at date of transaction
To illustrate, assume RORO Manufacturing with no 1. RIP 14,000
beginning inventories has the following transactions for
AP 14,000
Product YELLOW in March, 2016:
1. Purchased materials on account, P14,000. All
2. Cost of sales 32,000
materials immediately placed in process.
Payroll 20,000
2. Incurred conversion costs during the period,
FO applied 12,000
P32,000. RORO applies overhead at 60% of direct
labor cost.
3. AR 60,900
3. Product YELLOW was completed during the month.
Sales 60,900
The physical inventory taken after the production
process revealed the following:
A. Back-flush entries
a. RIP inventory, 3/31 (includes estimated
4. FG 13,500
conversion cost of P1,000) P 1,500
RIP 13,500
b. FG inventory, 3/31 (includes estimated Material cost in RIP, beg. P -
conversion cost of P1,700) P 2,500 Materials purchased 14,000
4. Cost of goods manufactured ( P13,500 of materials Material cost in RIP, end ( 500)
and P31,000 of conversion costs) P 44,500 Mat cost of compl units P13,500
5. Sold goods for P60,900 which is 145% of its cost
5. Cost of sales 12,700
P ?
FG 12,700
Required:
a. Prepare summary journal entries under the Materials cost in FG, beg P -
conventional cost accounting procedures. Materials cost of compl units 13,500
Materials cost in FG, end ( 800)
b. Prepare journal entries to summarize the above
Materials cost of sold units P 12,700
information using Back-flush costing.
6. RIP 1,000
CONVENTIONAL COSTING
FG 1,700
Materials P14,000 FG P44,500
AP P14,000 WIP P44,500 Cost of sales 2,700
WIP P14,000 AR P60,900
Materials P14,000 Sales P60,900
WIP P32,000 Cost of RIP FG
Payroll P20,000 sales P42,000
M – 14,000 13,500 – M M – 13,500 12,700 - M
FO applied 12,000 FG P42,000
CC - 1,000 CC - 1,700
EB:M - 500 EB:M - 800
Materials WIP CC 1,000 CC - 1,700
14,000 14,000 14,000 44,500
TOT 1,500 TOT - 2,500
- 32,000
1,500
Cost of sales
CC – 32,000 2,700 – CC
FG Cost of Sales
M- 12,700
44,500 42,000 42,000
2,500 EB:M –12,700
CC - 29,300
TOT 42,000

STRAIGHT PROBLEMS

Problem 1 1. Materials purchased on account, P84,000.

The DAVAO DEL NORTE MANUFACTURING COMPANY had 2. Materials issued for production, P75,000. Of this
the following inventories on April 1, 2020. amount, P9,000 was for indirect materials; the
Finished goods P 75,000 difference was distributed: P16,500 to Job 401;
Work in process 55,500 P21,000 to Job 402; and P28,500 to Job 403.
Materials 66,000 3. Materials returned to the warehouse from the
factory, P2,400, of which P900 was for indirect
The work in process account controls two jobs
materials, the balance from Job 403.
4. Materials returned to vendors, P3,000.
Job 401 Job 402
5. Payroll after deducting P9,075 for withholding taxes,
Materials P9,000 P16,800
P4,800 for SSS Premiums, P1,125 for Philhealth, and
Labor 7,500 9,000
P3,600 for Pag-ibig, was P98,400. The payroll due
Factory overhead 6,000 7,200
the employees was paid during the month.
P22,500 P33,000
6. The payroll was distributed as follows: P31,200 to
Job 401; P37,500 to Job 402, P31,500 to Job 403
The following information pertains to April operations:
and the balance represents indirect labor.

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7. The share of the employer for payroll was recorded – 3. Assuming the imperfection is due to internal failure,
P6,000 for SSS Premiums, P1,125 for Philhealth compute the cost of the completed units and give the
Contributions, and P3,600 for Pag-ibig Funds. entries to record the given transactions.
8. Factory overhead, other than any previously
mentioned, amounted to P45,000. Included in this
Problem 4
figure were P9,000 for depreciation of factory
NEGROS OCCIDENTAL MANUFACTURING COMPANY
building and equipment, and P 2,850 for expired
allocates service department budgeted costs to
insurance on the factory. The remaining overhead
production departments as a matter of company policy.
was unpaid at the end of April.
The production departments are P1 and P2, the service
9. Factory overhead was applied to production at the
departments are S1 and S2, and the monthly data are:
rate of 80% of direct labor cost.
The factory overhead rate for P1 is computed based on
10. Jobs 401 and 402 were completed and transferred to
20,000 direct labor hours and P2 based on 15,000
the finished goods warehouse.
machine hours.
11. Job 401 was shipped and billed at a gross profit of
Services provided by
40% of the cost of goods sold.
Budgeted Factory
12. Cash collections from accounts receivable during April
Overhead S1 S2
were P105,000.
P1 P 564,000 40% 50%
Requirements: P2 510,000 50% 30%
1. Journal entries to record the above transactions. S1 135,000 - 20%
2. Job order cost sheets. S2 105,600 10% -
3. Cost of goods sold statement.

Problem 2 Required: Compute the factor overhead rate for P1 and

SOUTH COTABATO MANUFACTURING COMPANY. charges P2 after distribution of service department costs using:
The COMPOSTELA VALLEY MANUFACTURING C0MPANY 1. Direct method
has a cycle time of 5.0 days, uses an in process (RIP) 2. Step method – start with S1
account and charges all conversion costs to Cost of 3. Simultaneous method (algebraic method)
Goods Sold. At the end of each month, all inventories are
counted, their conversion cost components are estimated
Problem 5
and inventory account balances are adjusted. Raw
For many years ILOILO MANUFACTURING COMPANY has
materials cost of completed unit is back-flushed from RIP
used a manufacturing overhead based on direct labor
to Finished Goods; raw material cost of sold units is
hours. A new plant accountant suggested that the
backflushed from Finished Goods to Cost of Goods Sold;
company may be able to assign overhead costs to
and conversion costs of ending RIP and FG inventories
products more accurately by using an activity based
are adjusted to/from cost of goods sold.
costing system. The accountant explains that by
Beginning balance of RIP account, including computing the overhead rate for each production activity
P18,600 of conversion costs P 42,000 that causes overhead costs, the resulting product costs
Beginning balance of FG account, including will reflect an accurate measure of overhead cost. The
P28,500 of conversion costs 54,000 direct material cost is P120 per unit. The budgeted hours
Raw materials purchased on credit 1,050,000 is 8,030 direct labor hours. The accountant has identified
Ending RIP inventory, including P44,100 activity centers to which overhead costs are assigned.
conversion cost estimate 67,200 The cost pool amounts for these centers and their
Ending FG inventory, including P31,500 selected activity drivers for 2006 are shown below.
conversion cost estimate 59,400 COSTS ACTIVITY
Conversion costs are P375,000 for direct ACTIVITY CENTERS DRIVERS
labor and P516,000 overhead 891,000 Material handling P60,000 1,200 times
handled
Required: Journal entries to record the given information
Scheduling & setups 80,000 400 setups
Design section 10,750 100 changes
Problem 3
Number of parts 50,000 500 parts
MISAMIS ORIENTAL MANUFCTURING COMPANY received
P 200,750
an order for 50 automatic mixing machines. Because of
the order’s exacting specifications, it is anticipated that
The company’s products and other operating statistics
defective and spoiled units will exceed the normal rate.
follows
The material cost per unit is P 240, labor is P582, and No. of No. No of
factory overhead is applied at 100% of direct labor cost. Qty. DLH times of Design No of
During production, 10 were found to be defective and Prod Produced Used DL Cost Handled Parts Charges Setups
required the following total additional costs – materials-P A 50 100 P2,000 20 10 2 5
291, labor – P375. On final inspection, 4 units were B 100 400 8,000 50 15 5 8
classified as seconds and sold for P1,200 each, the
proceeds being credited to the order. The buyer has Required:
agreed to accept the remaining good machines, although 1. Compute the unit cost for each product using direct
the acceptable units are fewer than the number ordered. labor hours as the overhead application rate.
2. Compute the unit cost for each product using activity
Required: based costing.
1. Cost of the completed units
2. Entries to record the given transactions.

MULTIPLE CHOICE

Lara Company has a cycle time of 3 days, uses a raw and inventories are counted, their conversion cost components
in process (RIP) account, and charges all conversion cost are estimated, and inventory account balances are
to Cost of Goods Sold. At the end of each month, all
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adjusted. Raw material cost is backflushed from RIP to

The following information pertains to Alma Co.,
Finished Goods.
manufacturing process
The following information is for June. 2016
Beginning balance of RIP account, March 1 March 31
including P3,000 of conversion cost P 29,250 Inventories
Beginning balance of finished goods Direct materials P 36,000 P 30,000
account, including P10,000 of conversion Work in process 18,000 12,000
cost 30,000 Finished goods 54,000 72,000
Raw materials received on credit 562,500 Additional information for the month of March:
Direct labor cost, P375,000, factory Direct materials purchased 84,000
overhead applied, P450,000 Direct labor payroll 60,000
Ending RIP inventory per physical count, Direct labor rate per hour 7.50
including P4,500 conversion cost 32,000 Factory overhead rate per direct labor
Ending finished goods inventory per count, hour 10.00
including P 8,750 conversion cost 26,250
4. How much must be the prime cost, conversion cost, and
1. The material cost of (1) the units completed and (2) cost of goods manufactured for the month?
the units sold are: Prime cost Conversion cost Cost of goods mftd
a. (1) P 561,250 (2) P 563,750 a. P90,000 P60,000 P236,000
b. (1) P 562,500 (2) P 565,000 b. 150,000 140,000 296,000
c. (1) P 588,750 (2) P 581,250 c. 144,000 170,000 230,000
d. (1) P 563,750 (2) P 561,250 d. 150,000 140,000 236,000

The accounting records for 2016 of EGGS Manufacturing

Company showed the following information: Adams Company uses a job order costing system and the
Increase in raw materials inventory P45,000 following information is available from the records. The
Decrease in Finished goods inventory 150,000 company has 3 jobs in process: 501, 502 and 503.
Increase in Work-in-Process inventory 60,000 Raw materials used P120,000
Raw materials purchased 1,290,000 Direct labor per hour P8.50
Direct labor payroll 600,000 Overhead applied based on direct labor cost 120%
Factory overhead 900,000
Freight out 135,000 Direct material was requisitioned as follows for each job,
respectively: 30%, 25%, and 25%, the balance of the
2. The cost of raw materials used for the period requisitions were considered indirect. Direct labor hours
amounted to: per job are 2,500, 3,100, and 4,200, respectively. Indirect
a. P1,245,000 c. P1,335,000 labor is P33,000. Other actual overhead costs totaled P
b. P1,290,000 d. P1,380,000 36,000.
5. What is the total amount of actual factory overhead?
A company has identified the following overhead costs and a. P 36,000 c. P 93,000
cost drivers for the coming year. b. P 69,000 d. P 99,960
Overhead Budgeted Budgeted 6. If Job 503 is completed and transferred, how much is
Item Cost driver Activity overhead the total cost transferred to Finished Goods Inventory?
Machine Number of a. P 96,700 c. P 108,540
set-up set-up 200 P20,000 b. P 99,020 d. P 139,540
Inspection Number of Miracle Company provides you with the following
inspection 6,500 130,000 information
Material Number of Jan. 1, 2020 Jan. 31, 2020
handling material Inventories:
moves 8,000 80,000 Materials P ? P50,000
Engineering Number of Work in process 80,000 95,000
engineering Finished goods 60,000 78,000
hours 1,000 50,000 January transactions:
Total P280,000 Purchases of materials, P 46,000
The following information was collected on three jobs that Factory overhead (75% of direct labor cost) P 63,000
were completed during the year: Selling and adm. expenses (12.5% of sales, P 25,000
Job 101 Job 102 Job 103 Factory overhead control, P 62,800
Direct materials P5,000 P12,000 P8,000 Net income for January, P 25,200
Direct labor 2,000 2,000 4,000 Indirect materials used, P 1,000
Units completed 100 50 200
7. Compute for materials inventory, Jan. 1, cost of goods
Number of setups 1 2 4
manufactured and cost of goods sold (normal) for the
Number of inspections 20 10 30
month of January, 2020.
Number of material
Materials Invty. Cost of goods Cost of goods
moves 30 10 50
Jan. 1 manufactured sold
Number of engineering
a. P 40,000 P168,200 P150,200
hours 10 50 10
b. 40,200 168,000 150,000
c. 40,800 167,800 149,800
Budgeted direct labor cost was P100,000 and budgeted
d. 41,000 168,000 150,000
direct material cost was P280,000.
3. If the company uses activity-based-costing, how much
Job No. 41 (consisting of 5,000 units) was started in
overhead cost should be assigned to Job 103?
September, 2020 and it is special in nature because of its
a P1,300 c. P 5,000
strict specifications. Factory overhead is charged at P 0.80
b P 2,000 d. P5,600

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per unit and includes a P.05 provision for defective work. b. P 15,400 d. P 31,800
The prime costs incurred in September are: Direct
materials, P 9,000 and Direct labor, P 4,800. Upon Marco Corporation has a job order cost system. The
inspection, 80 units were found with imperfections and following debits (credits) appeared in the general ledger
required the following reprocessing costs, Direct materials, account work-in-process for the month of September,
P 1,500 and direct labor, P 800. 2020:
8. The unit cost of Job No. 41, upon completion, is: September 1 Balance P 12,000
a. P 4.10 c. P 3.98 September 30, direct materials 40,000
b. P 4.05 d. P 3.62 September 30, direct labor 30,000
September 30, factory overhead 27,000
Work in process of Alonzo Corporation on July 1, 2020 (per September 30, to finished goods (100,000)
general ledger) is P 22,800. Marco applies overhead to production at a predetermined
Per cost sheets: rate of 90% based on the direct labor cost. Job no. 232,
Job 101 Job 102 the only job still in process at the end of September, 2020,
Direct materials P6,000 P8,000 has been charged with factory overhead of P2,250.
Direct labor 3,000 2,500 11. What was the amount of direct materials charged to
Job 232 as at end of September, 2016?
Amount charged to Work in process for July, 2020 a. P2,250 c. P4,250
Job 101 Job 102 Job 103 Job 104 b. P2,500 d. P9,000
Direct
materials P 3,000 P 2,000 P6,000 P4,500 Justine Company budgeted total variable overhead costs at
Direct P180,000 for the current period. In addition, they
labor 1,000 1,500 2,600 2,000 budgeted costs for factory rent at P215,000, costs for
depreciation on office equipment at P 12,000, costs for
Factory overhead is applied to production based on direct office rent at P92,000, and costs for depreciation of factory
labor cost. Jobs 101 and 103 are completed during the equipment at P 38,000. All these costs were based upon
month estimated machine hours of 80,000. Actual factory
9. Cost of goods put into process must be: overhead for the period amounted to P387,875 and
a. P 42,100 c. P 45,400 machine hours used totaled 74,000 hours.
b. P 26,860 d. P 49,660 12. What was the over or underapplied factory overhead
for the period?
10. The cost of goods manufactured for the month of July
a. P12,650 overapplied c. P 108,850 overapplied
is
b. P12,650 underapplied d. P108,850 underapplied
a. P 21.600 c. P 25,560

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