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
Job Order
• Small quantities
• Batches of identifiable, tailor-made
products
• User-specific services
• Tracks costs by job
6. Job Order or Process
Costing
Process
Large quantities
Homogeneous
goods
Tracks costs by
batch of goods by
department
Job Order
• Small quantities
• Batches of
identifiable,
tailor-made
products
• User-specific
services
• Tracks costs by
job
7. 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
10. Methods ofProduct
Costing
• Cost Accumulation System defines
– cost object
– method of assigning costs to production
• Valuation Method specifies
– how product costs will be measured
11. Six Possibilities
Job Order
• Actual
• Normal
• Standard
Process
• Actual
• Normal
• Standard
V
A
L M
U E
A T
T H
I O
O D
N
COSTING SYSTEM
12. Valuation Methods
Actual
Actual direct material
Actual direct labor
Actual overhead
Normal
Actual direct material
Actual direct labor
Predetermined overhead
• Standard
– Standard direct material
– Standard direct labor
– Standard overhead
The
Difference
13.
14. 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
17. 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
18. Materials Requisition
Form
Date No. ###
Job No. Department
Authorized by Issued by
Unit of Quantity Quantity UnitItem Part
No. No. Descrip. Measure Required Issued Cost
Total
Cost
Received by Inspected by
19. Job OrderCost
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
20. Job OrderCost
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
21. Job OrderCost
Sheet
Customer
Starting Date
Completion Date
Job No. ###
Job Description
Contract Price
Materials Direct Labor Overhead Applied
Date Ref# Amount Date Ref # Amount Date Ref# Amount
Total Materials
Total Labor Total Cost of Job
Total OH Applied ========
23. Employee Time
Sheet
• Time worked on each job
• Journal entry
Work in Process Inventory (direct labor)
Manufacturing Overhead (indirect labor)
Salaries and Wages Payable
24. Employee Time
Sheet
Employee No.
Department
Start
Employee Name
For week ending
Type of Work Job No. Time
Stop Total
Time Day Hours
Employee Signature Supervisor’s Signature
27. Completion ofa
Job
• Move job cost sheet from WIP
subsidiary to Finished Goods subsidiary
• Journal entry
Finished Goods Inventory
Work in Process Inventory
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
29. Management Use of
Job OrderCosting
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
30. Product and Material
Losses
• Shrinkage
– Evaporation
– Leakage
– Oxidation
• Production errors
– Defects can be economically reworked
– Spoilage cannot be economically reworked
31. Product and Material
Losses
• Normal Loss – expected during production
• Abnormal Loss – exceeds that expected
during production
32. Normal Loss
• 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
– Include cost less the estimated disposal value
34. Product and Material Losses
Normal
Loss
Loss for
most jobs
Loss identified
with a
specific job
In overhead
rate
Abnormal
Loss
Period cost
Charge to
specific job
Period cost
