1. Chapter 5: Job Order Costing
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2. Learning Objectives
How do job order and process costing systems, as well as their related valuation methods, differ?
What are the fundamental characteristics of a job order costing system?
What are the primary documents supporting a job order costing system and what purposes are served by each of them?
How are costs accumulated in a job order costing system?
How are standard costs used in a job order costing system?
How does information from a job order costing support management decision making?
How are losses treated in a job order costing system?
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3. 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
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4. 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
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5. Product Costing Cost identification Cost measurement
Product cost assignment
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
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6. Six Possibilities COST ACCUMULATION SYSTEM V A L M U E A T T H I O O D
Job Order
Actual
Normal
Standard
Process
Actual
Normal
Standard
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7. Valuation Methods Actual Standard Normal The Difference
Actual direct material
Actual direct labor
Actual overhead
Normal
Predetermined overhead
Standard
Standard direct material
Standard direct labor
Standard overhead
The
Difference
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8. © 2011 Cengage Learning. All Rights Reserved
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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
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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
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11. Material Requisition Form
Tracks who is responsible for materials
Verifies flow of materials from warehouse to department to job
Journal entry
Work in Process Inventory (direct material)
Manufacturing Overhead (indirect material)
Raw Material Inventory
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12. Materials Requisition Form
Date ___________________
No. 341
Job No. _________________
Department _______________
Issued by _________________
Authorized by ___________
Inspected by _______________
Received by _____________
Item Part Unit of Quantity Quantity Unit Total
No. No. Descrip. Measure Required Issued Cost Cost
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13. Job Order Cost Sheet All financial information about a job
Direct material (from material requisitions)
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 compared with budgeted costs
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14. Job Order Cost Sheet Materials Date Ref# Amount Direct Labor
Customer ____________ Job No. 315
Starting Date _________ Job Description ____________
Completion Date ______ Contract Price _____________
Materials
Date Ref# Amount
Direct Labor
Date Ref # Amount
Overhead Applied
Date Ref# Amount
Total Materials _________
Total Labor _________ Total Cost of Job
Total OH Applied _________ ========
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15. © 2011 Cengage Learning. All Rights Reserved
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16. Employee Time Sheet Time worked on each job Journal entry
Work in Process Inventory (direct labor)
Manufacturing Overhead (indirect labor)
Salaries and Wages Payable
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17. Employee Time Sheet For week ending _______ Start Stop Total
Employee Name _______________
Employee No. _______________
Department _______________
For week ending
_______
Start Stop Total
Type of Work Job No. Time Time Day Hours
Employee Signature Supervisor’s Signature
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18. Manufacturing Overhead
Overhead Account
Actual Overhead
Applied Overhead
Journal Entry
Work in Process Inventory
Manufacturing Overhead (applied)
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19. Completion of a Job
Move job cost sheet from WIP subsidiary to Finished Goods subsidiary
Journal entry
Finished Goods Inventory
Work in Process Inventory
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20. Matches revenues and expenses on the income statement
Sale
Journal entry
Accounts Receivable
Sale
Cost of Goods Sold
Finished Goods Inventory
Matches revenues and expenses on the income statement
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21. Job Order Costing and Technology
Automate data collection and data entry
Accounting software includes job costing modules
Share information using intranet
Intranet: Restricted network for sharing information and delivering data from corporate databases to local-area network (LAN) desktops
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

22. Journal Entries WIP consists of job cost sheets W & Sal Pay Materials
WIP-Job 1 FG
Accts Pay
WIP-Job 2
Overhead
CGS
WIP consists of job cost sheets
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23. Purchase Materials on Account (a)
W & Sal Pay
Materials
WIP-Job 1 FG a
Accts Pay
WIP-Job 2
Overhead
CGS a
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24. Use Materials Requisition to Request Materials for Jobs (b)
W & Sal Pay
Materials
WIP-Job 1 FG a b b
Accts Pay
WIP-Job 2
Overhead
CGS a b b
Direct materials to WIP
Indirect materials to Overhead
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25. Apply Overhead (d) c b a b c d b a b d c c d W & Sal Pay Materials
WIP-Job 1 FG c b a b c d
Accts Pay
WIP-Job 2
Overhead
CGS b a b d c c d
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26. Complete Job 1 (e) c b e e a b c d b a b d c c d W & Sal Pay Materials
WIP-Job 1 FG c b e e a b c d
Accts Pay
WIP-Job 2
Overhead
CGS b a b d c c d
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27. Sell Job (f, g) b e e c f a b c d b f a b d c c d g g W & Sal Pay
Materials
WIP-Job 1 FG b e e c f a b c d
Accts Pay
WIP-Job 2
CGS
Overhead b f a b d c c d
Accts Rec
Sales g g
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28. 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
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29. 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
Furnish performance evaluation information based on profitability of jobs
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30. Product and Material Losses
Shrinkage
Evaporation
Leakage
Oxidation
Production errors
Defects can be economically reworked
Spoilage cannot be economically reworked
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31. Normal vs. Abnormal Loss
Normal Loss—expected during production
Anticipated on all jobs
Include cost when calculating predetermined overhead application rate
Include cost less the estimated disposal value
Specific to a job
Applied to the specific job
Abnormal Loss—exceeds what is expected during production
Abnormal spoilage
Period cost—includes cost of abnormal loss less any disposal value
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32. 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
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33. 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?
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34. Potential Ethical Issues
Inflating costs assigned to cost-plus contracts
Assigning costs from a fixed-fee contract to a cost-plus contract
Substituting materials with inferior quality
Overstating costs included in Work in Process
Using methods or materials that violate intellectual property rights of other firms
Recording sales value of defective work as “Other Revenue”
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