Job Order Costing - An: By: Hannah Grace Halili

JOB ORDER
COSTING – AN
OVERVIEW
By: Hannah Grace Halili

An Overview
Job-Order Costing
– A type of costing used when different kinds of products, activities
or batches are produced within a period. In this costing system,
direct material costs and direct labor costs are usually traced
directly to the job/activity.
– Overhead is applied to jobs using a predetermined rate.
Components
– Materials Costs. When a job is

started, materials that will be
required to complete the job are
withdrawn. The document that
authorizes these withdrawals and
that specifies the types and
amounts of materials withdrawn is
called the materials requisition
form. The materials requisition
form identifies the job to which the
materials are to be charged.
Components
– Labor. Labor costs are recorded on

a document called a time ticket or a
time sheet. An employee records
the amount of time he or she
spends on each job and each task
on a time ticket. The time spent on
a particular job is considered direct
labor and its cost is traced to that
job. The cost of time spent on other
tasks, not traceable to any
particular job, is usually considered
part of manufacturing overhead.
– Manufacturing Overhead. Manufacturing overhead includes all
manufacturing costs that are not traced to a particular job. In practice,
manufacturing overhead usually consists of all manufacturing costs other than
direct materials and direct labor.
Flow of Cost
– Overview of Cost Flows.

The basic flow of costs in a job-
order system begins by recording
the costs of material, labor, and
manufacturing overhead.
– Direct material and direct labor costs are debited to the Work In Process
account. Any indirect material or indirect labor costs are debited to the
Manufacturing Overhead control account, along with any other actual
manufacturing overhead costs incurred during the period. Manufacturing
overhead is applied to Work In Process using the predetermined rate.
The offsetting credit entry is to the Manufacturing Overhead control
account.
– The cost of finished units is credited to Work In Process
and debited to the Finished Goods inventory account.
– When units are sold, their costs are credited to Finished
Goods and debited to Cost of Good Sold.
Cost of Goods Manufactured
Schedule
– The cost of goods manufactured schedule is used to calculate the
cost of producing products for a period of time. The cost of goods
manufactured amount is transferred to the finished goods inventory
account during the period and is used in calculating cost of goods
sold on the income statement. The cost of goods manufactured
schedule reports the total manufacturing costs for the period that
were added to work‐in‐process, and adjusts these costs for the
change in the work‐in‐process inventory account to calculate the
cost of goods manufactured.
Cost of Goods Manufactured
Schedule (cont.)
– The cost of goods manufactured for the period is added to the
finished goods inventory. To calculate the cost of goods sold, the
change in finished goods inventory is added to/subtracted from
the cost of goods manufactured.
– Total Manufacturing Cost (Direct Materials + Direct Labor +

Overhead applied) + Beginning Work In Process Inventory –
Ending Work in Process Inventory
Cost of Goods Sold
– The cost of goods sold are the costs of all goods SOLD during
the period and includes the cost of goods manufactured plus the
beginning finished goods inventory minus the ending finished
goods inventory. Cost of goods sold is reported as an expense
on the income statements and is the only time product costs are
expensed.
– Beginning Finished Goods Inventory + Cost of Goods
Manufactured – Ending Finished Goods Inventory
Job Order Costing System in
Service Company
– Job order costing is also used in service organizations such as law
firms, movie studios, hospitals, and repair shops, as well as
manufacturing companies.
– In a law firm, for example, each client represents a “job,” and the
costs of that job are accumulated day by day on a job cost sheet as
the client’s case is handled by the firm. Legal forms and similar
inputs represent the direct materials for the job; the time expended
by attorneys represents the direct labor; and the costs secretaries,
clerks, rent, depreciation, and so forth, represent the overhead.
Job Order Costing System in
Service Company
– In a movie studio, each film produced is a “job,” and costs for
direct materials (customs, props, film, etc.) and direct labor
(actors, directors and extras) are accounted for and charged to
each film’s job cost sheet. A share of the studio’s overhead costs,
such as utilities, depreciation of equipment, wages of
maintenance workers, and so forth, is also charged to each film.
However, the method used by some studios to distribute
overhead costs among movies are controversial and sometimes
result in lawsuits.

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JOB ORDER

By: Hannah Grace Halili

– Materials Costs. When a job is

– Labor. Labor costs are recorded on

– Overview of Cost Flows.

– Total Manufacturing Cost (Direct Materials + Direct Labor +

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