JOB ORDER COSTING

Learning Objectives
1. Describe the differences between job-order costing and
process costing, and identify the types of firms that would
use each method.
2. Compute the predetermined overhead rate, and use the
rate to assign overhead to units or services produced.
3. Identify and set up the source documents used in job-order
costing.
4. Describe the cost flows associated with job-order costing.
5. Allocate support department costs to producing
departments

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 Job order vs process costing
Job order Process costing
 Wide variety of distinct  Homogenous products
products
 Cost accumulated by
 Cost accumulated by job process or department

 Unit cost = total job cost  Unit cost = process cost

output output
 Cost allocation and tracing

trace
Direct cost

trace
Traditional
costing Products Unit
cost
Indirect cost
Activity- based
costing
 Traditional costing for allocation indirect cost

Actual costing Normal costing

Direct Direct Direct Direct

labor Material Overhead labor Material Overhead

Product Product Predetermined

OH rate/POR

POR = estimated annual OH

Rarely used : estimated annual activity level
• OH is much more difficult to be
determined accurately
• Uneven OH, exp. maintenance
cost)
• Uneven production
 Estimating Overhead in normal costing

Step 1: Calculate the POR

Step 2 : Apply overhead to production Applied OH = POR X actual

through a year activity level

Step 3 : Reconcile the difference between Normal costing = DM + DL +

ACTUAL and APPLIED overhead Applied OH

Costs are tracked Costs are

throughout the computed
year in the OH throughout the
account year

compare

Overhead Variance = Actual overhead– Applied

overhead
 Overhead variance

Under Under Over Over

applied applied applied applied

Actual
OH Applie Applie
COGS Actual COGS
d OH d OH
OH

Actual > applied Actual < applied

Under-applied Over -applied

+ -
COGS COGS

Adjusted COGS = unadjusted COGS ±

overhead variance
 Application of overhead

Plantwide Departemental
overhead rate overhead rate

A single OH rate calculated

Multiple OH rate calculated
by using all estimated
by using estimated
overhead for a factory,
overhead for a department
divided by the estimated
divided by level activity at
activity level across the
the same department
entire factory
 Keeping track of job costs with source of document

Job order cost sheet

Johnson Leathergoods
Job order cost sheet
Job name : Backpack Date started : Jan, 3, 20XX Date completed : Jan, 29, 20XX

Direct material $ 1,000

Direct labor $ 1,080
Applied overhead $ 2400
Total cost $ 2,320
÷ number of units ÷ 20
Unit cost 116
 Material requisition form

Material requisition number = 012

Date : January, 11, 20XX
Department : Assembly
Jobs : Briefcase

Description Quantity Cost/unit Total cost

Buckles 10 $3 $30

Authorised signature :
 Time ticket
Job time ticket : 008
Employee name : Ed Wilson
Date : January, 12, 20XX

Start time Stop time Total time Hourly rate Amount Job name

8:00 10:00 2 18 36 Backpacks

10:00 11:00 1 18 18 Backpacks
11:00 12:00 1 18 18 Backpacks
01:00 05:00 4 18 72 Backpacks

Approved by :
(Department supervisor :
 Flow of cost through the accounts of a job-order costing

Balance sheet
Income statement

Material account
Work in Job Cost of goods
+ Purchase Finished goods
Process sold sold
- Material used

Subsidiary account Completed jobs

Job order cost sheets

Material requisition • Direct materials • Selling expenses
forms
Labor time ticket • Direct labor • Administrative
• Applied OH expenses
 Flow of cost

 Accounting for materials

 Accounting for direct labor cost
 Accounting for overhead
 Accounting for actual overhead cost
 Accounting for finished good schedule of CoGM
 Accounting for cost of good sold  statement of CoGS
 Accounting for non-manufacturing cost  income
statement
 Support departmental cost allocation
Types of department

Support
Producing department
department

Directly responsible for

creating products or Provide essential
services services for producing
department, but they
do not actually make
the product or services
Methods of support department cost
allocation

Direct method Sequential method Reciprocal method

?
Companies must determine the extent of support department
interaction and weigh the individual costs and benefits of
each method
 Direct method

 The direct method is simplest and more straightforward

way to assign support department cost

 No cost from one support department is given to

another support department

 Thus no support department interaction is recognized

 Sequential method

 This method recognize that interactions among

department

 However, the sequential method does not fully account

for support department interaction

 Cost allocations are performed in a step-down fashion,

following a predetemined ranking procedure
 Reciprocal method

 Allocation recognize all interactions among support

department

 This method is not widely uses due to its complexity