Managerial Accounting
Module 5: Job Order Costing
Module Learning Outcomes
Understand job order costing
5.1: Understand the characteristics of job order costing
5.2: Assign costs to jobs
5.3: Account for completed jobs
Job Order Costing
Learning Outcomes: Job Order Costing
5.1: Understand the characteristics of job order costing
5.1.1: Identify the characteristics of job costing
5.1.2: Compare and contrast job order costing and process
costing
5.1.3: Calculate job costs for a service business
Identify The Characteristics of Job Costing
Companies match the flow of costs to the physical flow of products through
the production process. During production, the materials processed by
workers and machines become partially manufactured products. At any
time during production, these partially manufactured products are
collectively known as work in process (WIP).
Identify the Characteristics of Job Costing
Some of the defining characteristics of Job
Order Costing include:
● A job consists of a single order or
contract.
● Each product/job is unique in some
way.
● The costs of each job are ascertained
by adding direct materials, direct
labor, and allocated overhead.
● Each job is distinguishable from other
jobs, and direct costs can be directly
traced to each job.
Compare and Contrast Job Order Costing and
Process Costing
Job Order Costing: Process Costing:
● Costs accumulated by process or
● Costs accumulated by the job. department.
● Job costs are kept on a “job cost ● Work in process kept by batch in a
sheet” for work in process. production report.
● Unique products or jobs. ● Identical products.
● Jobs are customer-specific and ● Units produced continuously in
custom made. automated processes.
Calculate Job Costs for a Service Business
Applied Job Order Cost
Direct Labor Direct
Overhead
Costs
Practice Question 1
Which of the following businesses would most benefit from job costing?
A. Pre-packaged food company
B. Home builder
C. Sports equipment manufacturer
D. Auto manufacturer
Accumulating and Assigning Costs
Learning Outcomes: Assign Costs to Jobs
5.2: Assign costs to jobs
5.2.1: Record direct materials and direct labor for a job
5.2.2: Allocate manufacturing overhead to jobs
5.2.3: Prepare a job cost record
Record Direct Materials and Direct Labor For a
Job
As costs for direct materials and direct labor are
incurred, they are recorded with journal entries and
added to the assigned job card.
The total of the job cards matches the ledger account
called Work in Process. This will always be true. Work in
Process is a “control” account that accumulates costs
chronologically. The Job Cards serve as a “subsidiary”
ledger that sorts those same costs by project.
Allocate Manufacturing Overhead to Jobs
The Factory Overhead account is used to record all factory
expenses except direct materials and direct labor. Factory
overhead costs are indirect because they cannot be
specifically traced to particular jobs, but are instead incurred
in the factory as a whole.
Since factory overhead cannot be specifically traced to a
particular job, it is instead allocated to jobs using an activity
base that estimates its consumption. Each company uses a
method of estimating that makes sense for them, so the
process can vary among companies.
Allocate Manufacturing Overhead to Jobs
Three common plant-wide
activity bases used to
allocate factory overhead
costs are:
1. a percentage of direct
labor cost
2. number of direct labor
hours
3. number of machine-
hours
Prepare a Job Cost Record
The first step after receiving an order would be for the production
manager to put the job into the queue and to start an official job
card.
The company will likely use many forms to accumulate costs, such
as a materials requisition form that will allow the production crew
to remove raw materials from the warehouse.
In addition, company timesheets will have fields for direct and
indirect time.
As you have seen, the total of all the job cards constitutes a
“subsidiary ledger” that will agree to the general ledger control
account.
Practice Question 2
Tri-Tech creates environmental impact statements (EIS) for projects on public
land. Last month, Ski Idaho ordered an EIS for a new ski lift and GRI ordered
an EIS for a mining claim. Tri-Tech charges direct costs plus 25%. Tri-Tech
oversees the process and incurs overhead of $9,000 per month, and
allocates overhead at based on direct labor costs. The company pays
consultants $500/hour to do the work. Both jobs were started and completed
last month. The Ski Idaho job took 120 hours and the GRI job took 60. How
much profit did Tri-Tech realize on the Ski Idaho job.
A. $4,500
B. $6,000
C. $9,000
D. $15,000
Month-end Reporting
Learning Outcomes: Account for Completed Jobs
5.3: Account for completed jobs
5.3.1: Record completion and sales of finished goods
5.3.2: Adjust for over and under-allocation overhead
Record completion and sales of finished
goods
Costs of completed jobs
that are moved physically
to the finished goods area
of the factory also have to
be moved in the accounting
records from work in
process to finished goods.
Adjust for over and under-allocated overhead
At the end of a period,
accountants may need
to make a journal entry
to adjust the Factory
Overhead account if
overhead was either
over- or under- allocated.
Quick Review
• What are the characteristics of job costing?
• Compare and contrast job order costing and process costing.
• How do you calculate job costs for a service business?
• How do you record direct materials and direct labor for a job?
• How do you allocate manufacturing overhead to jobs?
• How do you prepare a job cost record?
• How do you record completion and sales of finished goods?
• How do you adjust for over- and under-allocated overhead?