Chapter One

Job Order Costing Systems

Course Name : Cost Accounting 2

Course Code : BAAC3204 / BSAC3104
Specialization : Accounting And Finance
College of Economics and Business Studies (Muscat Branch)
U n i v e r s i t y o f Te c h n o l o g y a n d A p p l i e d S c i e n c e s
Learning Outcomes
 Discuss the basic mechanics of job order costing system
 Prepare journal entries for job costing from raw materials to
finished goods
 Calculate for the predetermined overhead rate, the amount
of applied overhead, the amount of under or over applied
overhead and the total cost of a job and
 Prepare a manufacturing statement and schedule of cost of
goods sold
References:-
• Essential Reading :

• Periasamy, P., Textbook of Financial Cost and Management Accounting, Global Media.
• http://ebookcentral.proquest.com/lib/momp/detail.action?docID=3011183

• For Journal Entries :

• https://opentextbc.ca/principlesofaccountingv2openstax/chapter/prepare-journal-en
tries-for-a-job-order-cost-system/

• Suggested Reading :

• Arora, M N., Cost and Management Accounting : Theory, Problems and Solutions,
Himalaya Publishing House
Introduction
• Job Costing is that form of specific order costing which applies
where industries which manufacture products or render
services against specific orders such as civil contracts,
construction works, automobile repair shop, printing press,
machine tool manufacturing ,ship building and furniture
making etc
Definition
• CIMA defines Job Costing as “that form of specific order costing which
applies, where work is undertaken to customers special requirements and
each order is of comparatively short duration”
Features of Job Costing
1. Works or production are undertaken against the order of
customers.
2. Production is not as a continuous process because each job is
accepted by work order basis not for stock or future sales.
3. Each job is treated as a separate entity for the purpose of costing.
4. There is no uniformity in the flow of production because of
different production processes.
5. Costs are collected and accumulated after the completion of each
job in order to find out profit or loss on each job.
6. The jobs differ from each other as they require separate work in
progress maintained for each job.
Advantages of Job Costing
1. It helps management to identify profitable and unprofitable jobs.
2. It provides required information for preparation of estimates
while submitting quotations for similar jobs.
3. It facilitates effective cost control by evaluating operational
efficiency of each job or works.
4. It helps management to fix selling price of each order or each
job.
5. It facilitates the introduction of budgetary control of overheads,
since the overheads are charged on predetermined basis to arrive
at the total costs.
Disadvantages of Job Costing
1. This method is relatively involve more labour intensive.
Thus, it is expensive.
2. With increase in clerical work, there are chances for
committing more errors and mistakes.
3. Job Costing is essentially historical costing. It does not
provide for the control of cost unless it is combined with
standard costing system.
4. It is difficult to make cost comparison among different jobs
because each job has its own features.
Job Costing Procedure
1.
Customer’
s Enquiry
7. Profit 2.
or Loss on Quotation
Job of the Job

6. 3.
Completio Customer’
n of Job s Order

5. Cost 4.
Accumulatio Productio
n n Order
Job Costing Procedure
• 1) Customer's Enquiry: Production or job order is executed on
the basis of enquiries received from the customers. The routine
enquiries may be related to expected estimated costs to be
incurred, quality to be maintained and duration for production
planning etc.
• (2) Quotation for the Job: As per the customer's enquiry and
specifications of work or job, a responsible person will prepare
the estimates or quotation and price is fixed for a specific job.
And the same conveyed to the customer appropriately.
• (3) Customer's Order: If the quotation is satisfactory to the
customer, he may place an order.
• (4) Production Order: As soon as an order is received, the
Production Planning and Controlling Department will make out a
production order. It is in the form of instructions issued to the
foremen to execute the order and to control its physical
progress. It contains all the information regarding the
production. Accordingly production control department assign a
production order number for each order or job.
• (5) Cost Accumulation: The Cost Accountant is responsible to
prepare a Job Cost Card on the basis of production order. It is
also termed as "Job Cost Sheet." For each job the costs are
collected and recorded under separate production order number.
• (6) Completion of Jobs: After completion of a job, the final
report is sent to the costing department with regard to
charging of material, labour, and overheads as recorded in the
job cost sheet. The actual cost recorded under each element
of cost is ascertained to find out the total cost. Any deviations
from the estimated costs are also noted to take the corrective
actions.
• (7) Profit or Loss on Job: It is determined by comparing the
actual cost with the price obtained.
Journal Entries in Job Cost
Accounting Process
1. For Purchase of Raw Material

2. For Accrued Labour Cost

3. For transfer of Direct Material and Direct Labour to the Job

4. For transfer indirect material, indirect labour and other OHs to the
factory Overheads
5. For applying Overheads to the Job (based on OH
absorption Rate)

6. Accounting for Actual Overheads and Applied Overheads

• Under-absorption (Applied<Actual) Over-absorption (Applied>Actual)
7. To Transfer Work-in-Process to Finished Goods (Completion of job)

8. To Transfer Finished Goods to Cost of Goods Sold

(Recording Cost of Goods Sold)
9. For Recording sales
Journal Entries in Job Cost
Accounting Process
Practice Problem 1 :
• A company has the following transactions during the week.
1. Purchase of $3,000 raw materials inventory
2. Assignment of $700 of raw materials inventory to Job 7
3. Payroll for 10 hours and $3,000 is assigned to Job 7
4. Factory depreciation of $1,750
5. Overhead applied at the rate of $200 per hour
• Pass the Journal Entries
Journal Entries in Job Cost
Accounting Process
Practice Problem 2 :
A company’s individual job sheets show these costs:
A chart showing costs for Jobs 131, 132, and 133. Direct materials is
RO 4585, RO 8723, and RO 1575 respectively. Direct labor is RO2385, RO
2498, and RO 2874, respectively.
Overhead is applied at 1.25 times the direct labor cost.
You are required to :
Prepare an entry to record the assignment of direc t materials to work in process.
Prepare an entry to record the assignment of direct labor to work in process.
Prepare an entry to record the assignment of manufacturing overhead to work in
process.
• Pratice Problem 3
A company’s individual job sheets show these costs for Jobs 298, 299, and
300. Direct material is RO 2,228, RO 23,945, and RO 4,231 respectively.
Direct labor is RO 2,391, RO 23,492, and RO 3,413, respectively.
Overhead is applied at 1.75 times the direct labor cost. Use the data on the
cost sheets to perform these tasks:
You are required to :
Prepare an entry to record the assignment of direct material to work in
process.
Prepare an entry to record the assignment of direct labor to work in process.
Prepare an entry to record the assignment of manufacturing overhead to work
in process.
Solved Problem 1
Oasis Company uses a Job order cost accounting system. The following
information was provided for the month of March.
a. Raw material purchased OMR 59,700 on account
b. Material requisitions issued by the production department during the month OMR 56,200
c. Total of Direct labour cost OMR 30,000 and the time card shows 2,000 hours worked by the
direct labour for the jobs.
d. In the month of March Direct labours were paid OMR 26,300
e. Actual overhead cost for the month OMR 34,900
f. Overhead is applied to jobs at a rate of OMR 18 per direct labour hour
g. Total cost of jobs which were completed during the month OMR 116,000
h. On 31st March finished goods inventory was valued at OMR 22,000
i. Finished goods were sold on account for OMR 128,000
Solution
Practice Problem 4
The following data summarize the operations during the year. Prepare a journal entry
for each transaction.
1. Purchase of raw materials on account: $3,000
2. Raw materials used by Job 1: $500
3. Raw materials used as indirect materials: $100
4. Direct labor for Job 1: $300
5. Indirect labor incurred: $50
6. Factory utilities incurred on account: $700
7. Manufacturing overhead applied as percent of direct labor: 200%
8. Job 1 is transferred to finished goods
9. Job 1 is sold: $3,000
10. Manufacturing overhead is overapplied: $100
Practice Problem 5
During the month of July, Creative Printers purchased $ 25,000 of
materials on account. The company sent direct materials from the
storeroom to jobs as follows: $ 9,000 to Job No. 106, and $ 14,000 to
Job No. 107. The company also sent indirect materials of $ 1,000 to
each job.
The company assigned production-related labor costs to jobs (direct
labor) and to Overhead as follows: $4,000 to Job No. 106, $ 16,000 to
Job No. 107, and indirect labor of $ 2,000 to Job No. 106.
Pass the journal entries in the books of Creative printers for material,
labour and overheads.
Job Costing – T Accounts
• Solved Problem 2
• The information given below has been taken from the records
of an engineering works in respect of Job. No. 111 and Job.
No. 222.

• You are required to find out the cost of each of Job and
calculate profit or loss if any assuming that Job No. 222 is
completed and invoiced to the customer at RO 4000
Solution
Practice Problem 6
Practice Problem 7
Practice Problem 8
Practice Problem 9
Prepared by:-
Dr. T V V Phani Kumar
• Office No. BS 047
• Ext : 5216
• email : phani.kumar@hct.edu.om