1. Foundations and Evolutions
Cost Accounting
Foundations and Evolutions
Kinney, Prather, Raiborn
Chapter 4
Job Order Costing

2. Learning Objectives (1 of 3)
Contrast the job order and process costing systems and their valuation methods
Define what the term ‘job’ means
Explain the purpose of the documents used in a job order costing system

3. Learning Objectives (2 of 3)
List the journal entries used to accumulate costs in a job order costing system
Identify how technology impacts the gathering and use of information in job order costing systems

4. Learning Objectives (3of 3)
Explain how standard costs are used in a job order costing system
Describe how job order costing information supports management decision making
Explain how losses are treated in a job order costing system

5. Job Order or Process Costing
Small quantities
Batches of identifiable, tailor-made products
User-specific services
Tracks costs by job
Process
Large quantities
Homogeneous goods
Tracks costs by batch of goods by department

6. Job Order Costing
A job is a single unit or group of units identifiable as being produced to distinct customer specifications
A job can be a
Client
Engagement
Project
Contract

7. Methods of Product Costing
Cost Accumulation System defines
cost object
method of assigning costs to production
Valuation Method specifies
how product costs will be measured

8. Six Possibilities V A L M U E A T T H I O O D N COSTING SYSTEM
Job Order
Actual
Normal
Standard
Process
Actual
Normal
Standard

9. Job Order Costing System
Each job is a cost object
Costs are accumulated for each job
A job can consist of one or more units of output
There is a subsidiary ledger for each job

10. Job Order Costing System
WIP Subsidiary Ledger
Job 2
Job 1
Job 3
WIP Control =
100
200
500
Job
Job
Job
Total 800
Job 1 + Job 2 + Job = WIP Control

11. Material Requisition Form
Tracks who is responsible for materials
Verifies flow of materials from warehouse to department to job

12. Job Order Cost Sheet All financial information about a job
direct material (from material requisition)
direct labor (from time sheets or labor tickets)
applied overhead
budgeted cost information
When job is complete, use job order cost sheet to analyze actual costs to budgeted costs

13. Employee Time Sheet
Time worked on each job

14. Job Order Costing and Technology
Automate data collection and data entry
Accounting software includes job costing modules
Share information using intranet

15. Intranet
Restricted network for sharing information and delivering data from corporate databases to local-area network (LAN) desktops

16. Standard Cost System Actual cost Normal cost Standard cost
Predetermined norms (or standards) for materials, labor, and overhead
Compare actual costs to standard costs - difference is a variance

17. Management Use of Job Order Costing Systems
Estimate future job costs
Establish realistic bids and selling prices
Develop budgets and standards
Compare actual costs to estimated costs
Determine which jobs are profitable
Manage inventory

18. Product and Material Losses
Shrinkage
Evaporation
Leakage
Oxidation
Production errors
Defects can be economically reworked
Spoilage cannot be economically reworked

19. Product and Material Losses
Normal Loss – expected during production
Abnormal Loss – exceeds that expected during production

20. Product and Material Losses
Normal
Loss
Abnormal
Loss
Loss for
most jobs
In overhead
rate
Period cost
Loss identified
with a
specific job
Charge to
specific job
Period cost

21. Questions
What is the difference between job order and process costing systems?
How do actual, normal, and standard costing valuation methods differ?
How is the job order cost sheet used?