Job Order Costing

1
Job Order Costing

• Job Order Costing
• Job order costing assigns costs to each job. A
  job can be an order, a contract or a unit of
  production. e.g. If we want to accumulate the
  cost of repair of a machine this is done by
  collecting the cost of parts, direct labor and
  overhead costs (applied by using an overhead
  rate).

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• Therefore job order accounting system is a
  product system used in making one-of a-kind or
  special order products. In such system direct
  materials, direct labor and overhead costs are
  assigned to specific jobs . In computing unit
  costs the total manufacturing costs for each job
  order are divided by the number of units produced
  for that order.

3

• Accordingly Job order costing characteristics
• 1. Collect manufacturing costs
• 2. Measure costs of completed jobs
• 3. Has ONE work in process account for all
  unfinished jobs

4

• Accounting for material in job order system
• Materials if they form an identifiable part of
  the end product they are classified as direct
  materials and if they are used in the
  manufacturing process they are classified as
  indirect. Once material are there a material
  requisition form is made to record the material
  flow.

5

• This is the basic source of document informing
  the cost accounting department that materials
  have been issued. (Internal control) other
  documents include material purchase request,
  purchase orders and receiving reports.

6

• Material requisitions facilitate assigning the
  cost to a job or a department.
• This source document allows for the transfer
  costs from direct materials inventory to work in
  process inventory.

7

• Labor Accounting in job order costing
• Accurate and understandable methods for
  calculating payroll are necessary because no
  other area in accounting has more impact on the
  morale of employees than their wages or benefit
  policies.

8

• Labor systems
• Wages are hourly or piece-rate payment and they
  are variable costs.
• Salaries are fixed periodic payments such as
  weekly or monthly payments. If tax is withheld
  then it has to appear in the books.

9

• Labor related costs
• These include bonuses, vacation pay, free uniform
  and hospitalization insurance. Cost accountants
  account for these costs by job or department. To
  account for all costs we need timekeeping
  records. These include

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• Timecard or clock card this show the time each
  employee arrives and leaves. It provides evidence
  of when the employee was on the work site.
• Date Time
• 1/1 800
• 1/1 300

11

• Job time ticket as time cards indicate the total
  time worked companies needed an indicator of the
  time spent on each job during the day. A job time
  ticket shows where an employee worked during the
  day, the time he started and the time he stopped
  and the rate of pay.
• Date Employee name
• Time started Job No.
• Time Stopped Department
• Hours worked Pieces completed
• Rate Amount

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• Daily time ticket this summarizes all the jobs
  performed during the day. This form shows where
  an employee worked during the day, the time he
  started and the time he stopped.
• Date Employee name
• Started Stopped Hours Job No. Department
• Total Hours worked
• Regular Overtime

13

• Factory overhead Accounting
• Because factory overhead for are linked to
  certain products they are debited to a factory
  overhead control account. They are accounted for
  by the techniques discussed earlier.

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• Example
• ABC company had following operations for the
  month of November.
• Material requisition and factory labor used
• Materials Labor
• Job1 2340 1090
• Job 2 3390 1990
• Job 3 2980 1440
• Job 4 4765 2890
• Job 5 2240 940
• Job 6 1940 1090
• For general factory use 515 690

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• 2. Factory overhead is applied at 60 of direct
  labor cost.
• 3. Jobs completed no. 1, 2, 4, and 5
• 4. Jobs no. 1, 2, and 4 were shipped and
  costumers were billed 5690, 9490, and 13290
• Required
• calculate the cost of finished jobs
• calculate the cost of jobs sold

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• Solution
• 1. Cost of finished jobs
• Job D.M D.L O. head Total
• 1 2340 1090 654 4084
• 2 3390 1990 1194 6574
• 4 4765 2890 1734 9389
• 5 2240 940 564 3744
• Total 23791

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• 2. Cost of jobs sold
• job 1 4084
• job 2 6574
• job 4 9389
• 20047