5 -1

CHAPTER

Job-Order
Costing
 5 -2

Objectives
Objectives
1. Describe the differences between job-order
After
After studying
studying this
thisidentify the types
costing and process costing, and
chapter, you should
of firms that would use eachshould
chapter, you method.
be
be able
able to:
to:documents used in
2. Identify and set up the source
job-order costing.
3. Describe the cost flows associated with job-order
costing.
4. Appendix: Prepare the journal entries associated
with job-order costing.
 5 -3

Comparison of Job-Order and

Process Costing
Process
Process or
or job-
job-
order
order costing?
costing?
 5 -4

Characteristics
Characteristics of
of Job-Order
Job-Order Costing
Costing
 Wide-variety of services
or products that are quite
distinct from each other BEAT
SOUTH
 Cost accumulated by job
HIGH
 Unit cost computed by
dividing total job costs
by units produced on that
job
 5 -5

Characteristics
Characteristics of
of Process
Process Costing
Costing
 Produce large quantities of
similar or homogeneous
products
 Cost accumulated by process or
department for a given period
of time
 Unit cost computed by dividing
process costs of period by the
units produced in the period
 5 -6

Exxon oil refinery Process

Process
Process or
or
Process
job-order
job-order Coca Cola plant
Custom home builder Job order
costing?
costing?
Shop for customizing vans Job order
Television repair shop Job order
Campbell soup plant Process
Advertising agency Job order
Law firm Job order
 5 -7

Job-Order
Job-Order Costing
Costing

Job 425 Job 426 Job 427 Total

Beginning balance $58,600 $51,300 $ 0 $109,900
Current costs:
Direct materials 4,800 3,600 23,500 31,900
Direct labor 6,000 9,000 10,000 25,000
Applied overhead 2,400 3,600 4,000 10,000
Total $71,800 $67,500 $37,500 $176,800

This information is used to determine the total

cost of goods manufactured.
 5 -8

Johnson
Johnson Leathergoods
Leathergoods
 5 -9

Job-Order
Job-Order Cost
Cost Sheet
Sheet

AA job-cost
job-cost sheet
sheet isis aa
document
document used
used to to
accumulate
accumulate the the cost
cost forfor
aa specific
specific job
job in
in aa job-
job-
cost
cost system
Job Cost Sheet

system
Direct Materials

July 1 100 lbs. @ $ 0.25 = $ 25

3 75 oz. @ $1.40 = 105

Direct Labor

July 1 3 hrs. @ $10.00 = $ 30

3 7 hrs @ $10.00 = 70

Factory Overhead

July 7 10 dlh x $2 = $ 20
 5 -10

Johnson
Johnson Leathergoods
Leathergoods
Unit Cost

Direct materials $1,000

Direct labor 1,080
Applied Overhead 240
Total cost $2,320
 number of units  20
Unit cost $ 116
 5 -11

Johnson
Johnson Leathergoods
Leathergoods
Material Requisition
Date January 11, 2004 Number 12
Department Assembly
Job Briefcase
Description Quantity Cost/Unit Total Cost

Buckles 10 $30 $300

Authorized Signature Jim Lawson

Material
MaterialRequisition
RequisitionForm
Form
 5 -12

Johnson
Johnson Leathergoods
Leathergoods
Employee Number 4 Job Time Ticket
Name Ed Wilson Number 8

Date January 12, 2003

Start Time Stop Time Total Time Hourly Rate Amount Job Number
8:00 10:00 2 $9 $18 Backpacks
10:00 11:00 1 9 9 Briefcases
11:00 12:00 1 9 9 Backpacks
1:00 5:00 4 9 36 Backpacks

Authorized Signature Jim Lawson

Department Supervisor

Job
JobTime
TimeTicket
Ticket
 5 -13

Through the Accounts

Johnson
Johnson Leathergoods
Leathergoods
 5 -14

Summary
Summary of
of Materials
Materials Cost
Cost Flows
Flows
Materials Account
Beginning balance $0
Purchases 2,500
Direct material used 1,500
Ending balance 1,000

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials 1,000 Direct materials $500
Direct labor Direct labor
Overhead applied Overhead applied
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
 5 -15

Summary
Summary of
of Direct
Direct Labor
Labor Cost
Cost Flows
Flows
Wages Payable
Direct hours 170
x wage rate x $9
Total direct labor $ 1,530

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $ 1,000 Direct materials $ 500
Direct labor 1,080 Direct labor 450
Overhead applied Overhead applied
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
 5 -16
Accounting for Overhead
Actual
Actual overhead
overhead costs
costs are
arenever
never
assigned
assigned directly
directly to
to jobs.
jobs.
Overhead
Overhead isis applied
applied using
using aa
predetermined
predetermined overhead
overhead rate.
rate.

$9,600
Estimated Overhead
Overhead rate =
Estimated
4,800Direct
Labor Hours
= $2 per direct labor hour

Functional Approach
 5 -17
Accounting for Overhead—Using ABC
Estimated Overhead ($) Expected Demand for
for Each Driver Each Driver
Purchasing $3,000 Purchase orders 100
Machining 4,200 Machine hours 2,800
Other 2,400 Direct labor hours 4,800
$3,000 ÷ 100 = $30 per purchase order
$4,200 ÷ 2,800 = $1.50 per machine hour
$2,400 ÷ 4,800 = $0.50 per direct labor hour
 5 -18
Accounting for Overhead—Using ABC

Backpacks:
Purchase orders 3
Machine hours 60
Direct labor hours 120

Briefcases:
Purchase orders 1
Machine hours 30
Direct labor hours 50
 5 -19
Accounting for Overhead—Using ABC

Purchasing:
3 orders x $30 $ 90
1 order x $30 $30
Machining:
60 hours x $1.50 90
30 hours x $1.50 45
Other:
120 DLH x $0.50 60
50 DLH x $0.50 25
Total overhead applied $240 $100
 5 -20
Summary
Summary of
of Overhead
Overhead Cost
Cost Flows
Flows
Actual Overhead Applied Overhead
Lease $200 Direct labor hours 170
Utilities 50 Overhead rate x $2
Equipment depreciation 100 Total applied overhead $340
Indirect labor 65
Total actual overhead $415

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1,080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost Total cost
Number of units 120 x $2 Number of units 50 x $2
Unit cost Unit cost
 5 -21
Summary
Summary of
of Overhead
Overhead Cost
Cost Flows
Flows

Actual Overhead Applied Overhead

Lease $200 Direct labor hours $170
Utilities 50 Overhead rate x $2
Equipment depreciation 100 Total applied overhead $340
Indirect labor 65
Total actual overhead $415

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1,080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
 5 -22
Summary
Summary of
of Finished
Finished Goods
Goods Cost
Cost Flows
Flows

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost $2,320 Total cost $1,050
Number of units 20 Number of units
Unit cost $116 Unit cost

Finished Goods Account

Backpacks $2,320
 5 -23
Johnson Leathergoods
Schedule of Cost of Goods Manufactured
For the Month Ended January 31, 2004
Direct materials:
Beginning raw materials inventory $ 0
Purchases of raw materials 2,500
Total raw materials available for use $2,500
Ending raw materials 1,000
Total raw materials used $1,500
Direct labor 1,530
Overhead:
Lease $ 200
Utilities 50
Depreciation 100
Indirect labor 65
$ 415
Continued
Continued
 5 -24

$ 415
Less: Underapplied overhead 75
Overhead applied 340
Current manufacturing costs $3,370
Add: Beginning work in process 0
Total manufacturing cost $3,370
Less: Ending work in process 1,050
Cost of goods manufactured $2,320
 5 -25

Statement of Cost of Goods Sold

Beginning finished goods inventory $ 0
Cost of goods manufactured 2,320
Cost of goods available for sale $2,320
Less: Ending finished goods inventory 0
Normal cost of goods sold $2,320
Add: Underapplied overhead 75
Adjusted cost of goods sold $2,395
 5 -26

Johnson Leathergoods
Income Statement
For the Month Ended January 31, 2004
Sales $3,480
Cost of goods sold 2,395
Gross margin $1,085
Less selling and administrative expenses:
Selling expenses $200
Administrative expenses 550 750
Net operating income $ 335
 5 -27

Journal Entries
Associated With Job-
Order Costing
Johnson
Johnson Leathergoods
Leathergoods
 5 -28

Johnson
Johnson Leathergoods
Leathergoods

1 Materials 2 500 00
The receiving report and the invoice are
Accounts Payable 2 500 00
used to record the receipt of the
merchandise and to control the payment.

1. Materials costing $2,500 were

purchased on account.
 5 -29

Johnson
Johnson Leathergoods
Leathergoods

2 Work in Process 1 500 00

The receiving report and the invoice are
Materials 1 500 00
used to record the receipt of the
merchandise and to control the payment.

2. Materials costing $1,500 were

requisitioned for use in production.
 5 -30

Johnson
Johnson Leathergoods
Leathergoods

3 Work in Process 1 530 00

The receiving report and the invoice are
Wages Payable 1 530 00
used to record the receipt of the
merchandise and to control the payment.

3. Direct labor costing $1,530 was

recognized.
 5 -31

Johnson
Johnson Leathergoods
Leathergoods

4 Work in Process 340 00

The receiving report and the invoice are
Overhead Control 340 00
used to record the receipt of the
merchandise and to control the payment.

4. Overhead was applied to production at the

rate of $2 per direct labor hour. A total of
170 direct labor hours were worked.
 5 -32

Johnson
Johnson Leathergoods
Leathergoods

5 Overhead Control 415 00

The receiving report and the invoice are
Lease Payable 200 00
used to record the receipt of the
Utilities Payable 50 00
merchandise and to control the payment.
Accumulated Depreciation 100 00
Wages Payable 65 00

5. Actual overhead costs of $415 were

incurred: lease, $200; utilities, $50;
depreciation, $100; accrued wages, $65.
 5 -33

Johnson
Johnson Leathergoods
Leathergoods

6 Finished Goods 2 320 00

The receiving report and the invoice are
Work in Process 2 320 00
used to record the receipt of the
merchandise and to control the payment.

6. The backpacks were completed and transferred

to finished goods.
 5 -34

Johnson
Johnson Leathergoods
Leathergoods

7 Cost of Goods Sold 2 320 00

The receiving report and the invoice are
Finished Goods 2 320 00
used to record the receipt of the
merchandise and to control the payment.
7 Accounts Receivable 3 480 00
Sales Revenue 3 480 00

7. The backpacks were sold at

cost plus 50 percent.
 5 -35

Johnson
Johnson Leathergoods
Leathergoods

8 Cost of Goods Sold 75 00

The receiving report and the invoice are
Overhead Control 75 00
used to record the receipt of the
merchandise and to control the payment.

8. Underapplied overhead was closed to cost of

goods sold.
 5 -36

Johnson
Johnson Leathergoods
Leathergoods
Materials
(1) 2,500

(1) Purchased of materials

 5 -37

Johnson
Johnson Leathergoods
Leathergoods
Materials Work in Process
(1) 2,500 (2) 1,500 (2) 1,500

(2) Issue of materials

 5 -38

Johnson
Johnson Leathergoods
Leathergoods
Work in Process Wages Payable
(2) 1,500 (3) 1,530
(3) 1,530

(3) Incurrence of direct labor cost

 5 -39

Johnson
Johnson Leathergoods
Leathergoods
Work in Process Overhead Control
(2) 1,500 (4) 340
(3) 1,530
(4) 340

(4) Estimated overhead applied to Work in

Process
 5 -40

Johnson
Johnson Leathergoods
Leathergoods
Work in Process Overhead Control
(2) 1,500 (5) 415 (4) 340
(3) 1,530
(4) 340

(5) Actual overhead recorded

 5 -41

Johnson
Johnson Leathergoods
Leathergoods
Work in Process Finished Goods
(2) 1,500 (6) 2,320 (6) 2,320
(3) 1,530
(4) 340

(6) Transfer of Job 1 to finished goods

 5 -42

Johnson
Johnson Leathergoods
Leathergoods
Finished Goods Cost of Goods Sold
(6) 2,320 (7) 2,320 (6) 2,320

Accounts Receivable Sales Revenue

(7) 3,480 (7) 3,480

(7) Cost of goods sold for Job 1 and

revenue from sale on account
 5 -43

Johnson
Johnson Leathergoods
Leathergoods
Overhead Control Cost of Goods Sold
(5) 415 (4) 340 (7) 2,320
(8) 75 (8) 75

(8) Underapplied overhead closed

 5 -44

Chapter Five

The
The End
End
5 -45