5 -1

CHAPTER

Job-Order
Costing
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Objectives
1. Describe theAfter
differences between
studying this job-order
costing and chapter,
process costing, and
you should identify the
types of firms that would use
be able to: each method.
2. Identify and set up the source documents
used in job-order costing.
3. Describe the cost flows associated with job-
order costing.
4. Appendix: Prepare the journal entries
associated with job-order costing.
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Comparison of Job-Order and

Process Costing
Process or job-
order costing?
 5 -4

Characteristics of Job-Order Costing

 Wide-variety of services
or products that are quite
distinct from each other BEAT
SOUTH
 Cost accumulated by job
HIGH
 Unit cost computed by
dividing total job costs
by units produced on that
job
 5 -5

Characteristics of Process Costing

 Produce large quantities of
similar or homogeneous
products
 Cost accumulated by process or
department for a given period
of time
 Unit cost computed by dividing
process costs of period by the
units produced in the period
 5 -6

Exxon oil refinery Process

Process or
Coca Cola plant Process
job-order
Custom home builder Job order
costing?
Shop for customizing vans Job order
Television repair shop Job order
Campbell soup plant Process
Advertising agency Job order
Law firm Job order
 5 -7

Job-Order Costing

Job 425 Job 426 Job 427 Total

Beginning balance $58,600 $51,300 $ 0 $109,900
Current costs:
Direct materials 4,800 3,600 23,500 31,900
Direct labor 6,000 9,000 10,000 25,000
Applied overhead 2,400 3,600 4,000 10,000
Total $71,800 $67,500 $37,500 $176,800

This information is used to determine the total

cost of goods manufactured.
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Johnson Leathergoods
 5 -9

Job-Order Cost Sheet

A job-cost sheet is a
document used to
accumulate the cost for
a specific job in a job-
cost system
Job Cost Sheet

Direct Materials

July 1 100 lbs. @ $ 0.25 = $ 25

3 75 oz. @ $1.40 = 105

Direct Labor

July 1 3 hrs. @ $10.00 = $ 30

3 7 hrs @ $10.00 = 70

Factory Overhead

July 7 10 dlh x $2 = $ 20
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Johnson Leathergoods
Unit Cost

Direct materials $1,000

Direct labor 1,080
Applied Overhead 240
Total cost $2,320
÷ number of units ÷ 20
Unit cost $ 116
 5 -11

Johnson Leathergoods
Material Requisition
Date January 11, 2004 Number 12
Department Assembly
Job Briefcase
Description Quantity Cost/Unit Total Cost

Buckles 10 $30 $300

Authorized Signature Jim Lawson

Material Requisition Form

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Johnson Leathergoods
Employee Number 4 Job Time Ticket
Name Number 8
Ed Wilson
Date January 12, 2003
Start Time Stop Time Total Time Hourly Rate Amount Job Number
8:00 10:00 2 $9 $18 Backpacks
10:00 11:00 1 9 9 Briefcases
11:00 12:00 1 9 9 Backpacks
1:00 5:00 4 9 36 Backpacks

Authorized Signature Jim Lawson

Department Supervisor

Job Time Ticket

 5 -13

Through the Accounts

Johnson Leathergoods
 5 -14

Summary of Materials Cost Flows

Materials Account
Beginning balance $0
Purchases 2,500
Direct material used 1,500
Ending balance 1,000

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials 1,000 Direct materials $500
Direct labor Direct labor
Overhead applied Overhead applied
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
 5 -15

Summary of Direct Labor Cost Flows

Wages Payable
Direct hours 170
x wage rate x $9
Total direct labor $ 1,530

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $ 1,000 Direct materials $ 500
Direct labor 1,080 Direct labor 450
Overhead applied Overhead applied
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
 5 -16
Accounting for Overhead
Actual overhead costs are never
assigned directly to jobs.
Overhead is applied using a
predetermined overhead rate.

$9,600
Estimated Overhead
Overhead rate =
Estimated
4,800Direct
Labor Hours
= $2 per direct labor hour

Functional Approach
 5 -17
Accounting for Overhead—Using ABC
Estimated Overhead ($) Expected Demand for
for Each Driver Each Driver
Purchasing $3,000 Purchase orders 100
Machining 4,200 Machine hours 2,800
Other 2,400 Direct labor hours 4,800
$3,000 ÷ 100 = $30 per purchase order
$4,200 ÷ 2,800 = $1.50 per machine hour
$2,400 ÷ 4,800 = $0.50 per direct labor hour
 5 -18
Accounting for Overhead—Using ABC

Backpacks:
Purchase orders 3
Machine hours 60
Direct labor hours 120

Briefcases:
Purchase orders 1
Machine hours 30
Direct labor hours 50
 5 -19
Accounting for Overhead—Using ABC

Purchasing:
3 orders x $30 $ 90
1 order x $30 $30
Machining:
60 hours x $1.50 90
30 hours x $1.50 45
Other:
120 DLH x $0.50 60
50 DLH x $0.50 25
Total overhead applied $240 $100
 5 -20
Summary of Overhead Cost Flows
Actual Overhead Applied Overhead
Lease $200 Direct labor hours 170
Utilities 50 Overhead rate x $2
Equipment depreciation 100 Total applied overhead $340
Indirect labor 65
Total actual overhead $415

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1,080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost Total cost
Number of units 120 x $2 Number of units 50 x $2
Unit cost Unit cost
 5 -21
Summary of Overhead Cost Flows

Actual Overhead Applied Overhead

Lease $200 Direct labor hours $170
Utilities 50 Overhead rate x $2
Equipment depreciation 100 Total applied overhead $340
Indirect labor 65
Total actual overhead $415

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1,080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost Total cost
Number of units 20 Number of units 10
Unit cost Unit cost
 5 -22
Summary of Finished Goods Cost Flows

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases
Direct materials $1,000 Direct materials $500
Direct labor 1080 Direct labor 450
Overhead applied 240 Overhead applied 100
Total cost $2,320 Total cost $1,050
Number of units 20 Number of units
Unit cost $116 Unit cost

Finished Goods Account

Backpacks $2,320
 5 -23
Johnson Leathergoods
Schedule of Cost of Goods Manufactured
For the Month Ended January 31, 2004
Direct materials:
Beginning raw materials inventory $ 0
Purchases of raw materials 2,500
Total raw materials available for use $2,500
Ending raw materials 1,000
Total raw materials used $1,500
Direct labor 1,530
Overhead:
Lease $ 200
Utilities 50
Depreciation 100
Indirect labor 65
$ 415
Continued
 5 -24

$ 415
Less: Underapplied overhead 75
Overhead applied 340
Current manufacturing costs $3,370
Add: Beginning work in process 0
Total manufacturing cost $3,370
Less: Ending work in process 1,050
Cost of goods manufactured $2,320
 5 -25

Statement of Cost of Goods Sold

Beginning finished goods inventory $ 0
Cost of goods manufactured 2,320
Cost of goods available for sale $2,320
Less: Ending finished goods inventory 0
Normal cost of goods sold $2,320
Add: Underapplied overhead 75
Adjusted cost of goods sold $2,395
 5 -26

Johnson Leathergoods
Income Statement
For the Month Ended January 31, 2004
Sales $3,480
Cost of goods sold 2,395
Gross margin $1,085
Less selling and administrative expenses:
Selling expenses $200
Administrative expenses 550 750
Net operating income $ 335
 5 -27

Journal Entries
Associated With Job-
Order Costing
Johnson Leathergoods
 5 -28

Johnson Leathergoods

1 Materials 2 500 00
The receiving report and the invoice are
Accounts Payable 2 500 00
used to record the receipt of the
merchandise and to control the payment.

1. Materials costing $2,500 were

purchased on account.
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Johnson Leathergoods

2 Work in Process 1 500 00

The receiving report and the invoice are
Materials 1 500 00
used to record the receipt of the
merchandise and to control the payment.

2. Materials costing $1,500 were

requisitioned for use in production.
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Johnson Leathergoods

3 Work in Process 1 530 00

The receiving report and the invoice are
Wages Payable 1 530 00
used to record the receipt of the
merchandise and to control the payment.

3. Direct labor costing $1,530 was

recognized.
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Johnson Leathergoods

4 Work in Process 340 00

The receiving report and the invoice are
Overhead Control 340 00
used to record the receipt of the
merchandise and to control the payment.

4. Overhead was applied to production at the

rate of $2 per direct labor hour. A total of
170 direct labor hours were worked.
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Johnson Leathergoods

5 Overhead Control 415 00

The receiving report and the invoice are
Lease Payable 200 00
used to record the receipt of the
Utilities Payable 50 00
merchandise and to control the payment.
Accumulated Depreciation 100 00
Wages Payable 65 00

5. Actual overhead costs of $415 were

incurred: lease, $200; utilities, $50;
depreciation, $100; accrued wages, $65.
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Johnson Leathergoods

6 Finished Goods 2 320 00

The receiving report and the invoice are
Work in Process 2 320 00
used to record the receipt of the
merchandise and to control the payment.

6. The backpacks were completed and transferred

to finished goods.
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Johnson Leathergoods

7 Cost of Goods Sold 2 320 00

The receiving report and the invoice are
Finished Goods 2 320 00
used to record the receipt of the
merchandise and to control the payment.
7 Accounts Receivable 3 480 00
Sales Revenue 3 480 00

7. The backpacks were sold at

cost plus 50 percent.
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Johnson Leathergoods

8 Cost of Goods Sold 75 00

The receiving report and the invoice are
Overhead Control 75 00
used to record the receipt of the
merchandise and to control the payment.

8. Underapplied overhead was closed to cost of

goods sold.
 5 -36

Johnson Leathergoods
Materials
(1) 2,500

(1) Purchased of materials

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Johnson Leathergoods
Materials Work in Process
(1) 2,500 (2) 1,500 (2) 1,500

(2) Issue of materials

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Johnson Leathergoods
Work in Process Wages Payable
(2) 1,500 (3) 1,530
(3) 1,530

(3) Incurrence of direct labor cost

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Johnson Leathergoods
Work in Process Overhead Control
(2) 1,500 (4) 340
(3) 1,530
(4) 340

(4) Estimated overhead applied to Work in

Process
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Johnson Leathergoods
Work in Process Overhead Control
(2) 1,500 (5) 415 (4) 340
(3) 1,530
(4) 340

(5) Actual overhead recorded

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Johnson Leathergoods
Work in Process Finished Goods
(2) 1,500 (6) 2,320 (6) 2,320
(3) 1,530
(4) 340

(6) Transfer of Job 1 to finished goods

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Johnson Leathergoods
Finished Goods Cost of Goods Sold
(6) 2,320 (7) 2,320 (6) 2,320

Accounts Receivable Sales Revenue

(7) 3,480 (7) 3,480

(7) Cost of goods sold for Job 1 and

revenue from sale on account
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Johnson Leathergoods
Overhead Control Cost of Goods Sold
(5) 415 (4) 340 (7) 2,320
(8) 75 (8) 75

(8) Underapplied overhead closed

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Chapter Five

The End
5 -45