JOB ORDER

COSTING

Defined
A cost accumulation system used by
companies that make relatively small
quantities of distinct products or
perform unique services that conform to
specifications designed by the purchaser
Used by producers of heterogeneous
and custom outputs
Production costs are accumulated for each
separate job

Examples of Firms that Used JOC

Cobbler making custom shoes and
boots
Publishing company producing
educational textbooks
Accountant preparing tax returns
Architectural firm designing
commercial buildings

Documents Used

Job Order Cost Sheet

The source document that provides virtually

all financial information about a particular job.
Includes information such as the job order
number, job description, customer
identification, scheduling information, delivery
instructions and contract price as well as
details regarding actual costs for direct
materials, direct labor and applied overhead.

Materials Stockcard
Records the perpetual book
inventory of costs and quantities of
materials on hand
File of materials stock cards of
unused materials constitute the
subsidiary record for Raw Materials
Inventory account
Also known as Materials Ledger

Materials Requisition
Prepared so material can be released
from inventory and sent to production
area
Indicates the types and quantities of
materials to be issued to production or
used to perform a service job
When a material is issued, the cost
indicated on the materials requisition will
be entered to the job order cost sheet

Employee Time Sheets

Indicates the jobs on which each
employee worked and the direct
labor time consumed
To get the labor cost to be included
on the job order cost sheet, the time
spent will be multiplied to the
corresponding employee wage rate

Job Order Cost Sheet

Cost sheets for uncompleted jobs
constitutes subsidiary record for Work
in Process account
Cost sheets for completed jobs
constituted subsidiary record for
Finished Goods Inventory account
Cost sheets for delivered or sold
jobs constitutes subsidiary record for
Cost of Goods Sold

Job Order Costing Journal Entries

Similar with the previously

discussed topics however
with variation in the use of
Work in Process account
since we will be accumulating
costs for separate jobs

Materials Losses/Errors

Defective Units

Resulted from production errors

which can be reworked to meet
quality specifications and be sold

Spoiled Units

Resulted from production errors

which cannot be reworked to meet
quality specifications and be sold

Accounting Treatment for Losses

Determine first the reason of the loss

Is the loss generally incurred for most jobs?

(Internal Failure)
Is the loss specifically identified to a job?
(Product Specifications)

Determine the magnitude of the loss

Is the loss normal?

Is the loss abnormal?

Defective Units
If the reason of the defect is the job
itself, the additional costs incurred
will be charged to all units in the
job.
Proforma Entry:

Work In Process xx
Raw Materials Inventory xx
Payroll xx
Factory Overhead Applied xx

Defective Units
If the defect is normal to the process
and the number of defects do not
exceed the normal limit, the additional
costs incurred will be charged to all
units being processed during the period
Proforma Entry:

Factory Overhead Controlxx

Raw Materials Inventory xx
Payroll xx
Factory Overhead Applied xx

Illustration

Job 2308 called for making of 4,000 units with

these unit costs:
Direct Materials Php 15
Direct Labor
13
FOH (includes Php 1 allowance for
defective units) __ 12
Php 40
During processing, 300 units were found to be
defective and required the following additional
costs: Materials Php 2,000; Labor Php 4,000
and Overhead Php 2,000

Spoiled Units
If the reason of the spoilage is the job itself,
like exacting specifications or a difficult or
complicated manufacturing process, the
loss will be charged to the specific job and
will increase the unit cost of the remaining
perfect finished goods
Proforma Entry:

Spoiled Goods xx
Work In Process xx
Note: The amount to be debited and credited is equal to the
number of spoiled units multiplied by the estimated selling
price for these spoiled goods

Spoiled Units
If the reason of the spoilage is normal to the
process or due to internal failure and the
number of spoiled goods do not exceed the
normal limit, the unit cost of the remaining
perfect finished goods will not increase
Proforma Entry:

Spoiled Goods xx
Factory Overhead Control xx
Work In Process xx
Note: The amount to be debited in Spoiled Goods is equal to
the estimated selling price; the amount credited to WIP is
equal to the total costs charged to the spoiled goods and the
difference or loss will be charge to FOHC.

Illustration

Job 2308 called for making of 4,000 units

with these unit costs:
Direct Materials
Php 15
Direct Labor
13
FOH (includes Php 1 allowance for
spoiled units)
__
12
Php 40
During processing, 200 rejected units, a
normal number, were estimated to be
sold at Php 18 each.