CA 05: JOB ORDER COSTING

TWO BASIC PRODUCT COSTING SYSTEMS

1. JOB ORDER COSTING a system a system for allocating costs to groups of unique product. It is applicable to
the production of customer specified products such as the manufacture of special machines. Each job becomes
cost center for which costs are accumulated. A subsidiary record (job cost sheet) is need to keep track of all
unfinished jobs (work in process) and finished jobs (finished goods).
2. PROCESS COSTING a system applicable to a continuous process of production of the same or similar goods,
e.g., oil refining and chemical production. Since there is no need to determine the costs of different groups of
products because the product is uniform, each processing department becomes a cost center.

JOB ORDER COSTING VS. PROCESS COSTING

Unique jobs are worked on during a time

Homogenous units pass through a series of

period.
similar processes.
Costs are accumulated by individual job.

Costs are accumulated by processing

department
Unit costs are determined by dividing the total

Unit costs are computed by dividing the

costs sheet by the number of units on the job.
individual departments cost by the equivalent
production.
The job cost sheer provides the details for the

The cost of production report provides the

Work in Process account.
details for the Work in Process account for each
department

*OPERATIONS COSTING is a hybrid costing system often used in repetitive manufacturing where finished
products have common as well as distinguishing characteristics.
EXERCISE 1: JOB ORDER COSTING VS. PROCESS COSTING
TRUE OR FALSE:
1. A company that produces sugar will use a job order costing system to track production costs.
2. A company that manufactures custom bridal gowns will use a process costing system to track costs.
3. A company that manufactures small quantities of identifiable products will use a job order costing
system
4. A company that manufactures small quantities of identifiable products will use a process costing
system
5. A company that manufactures large quantities of homogenous goods will use a process costing
system.
THREE TYPES OF INVENTORY FOR MANUFACTURING.
1.Raw materials inventory
2.Work In Process Inventory
3.Finished Goods Inventory

ACCOUNTING FOR MATERIALS.

a. Issuance of DIRECT materials to the production:
Work in Process Inventory
Materials Inventory
b.

Issuance of INDIRECT materials to the production:

Factory Overhead Control
Materials Inventory

XXX
XXX
XXX
XXX

Page 1 of 6

ACCOUNTING FOR LABOR.

a. Incurrence of DIRECT labor:
Work in Process Inventory
Accrued Payroll
b.

XXX
XXX

Incurrence of INDIRECT labor:

Factory Overhead Control
Accrued Payroll

XXX
XXX

ACCOUNTING FOR FACTORY OVERHEAD.

TYPES OF FACTORY OVERHEAD.
1. FACTORY OVERHEAD CONTROL indirect manufacturing costs actually occurring and recorded. These include
the manufacturing costs of electricity, gas, water, rent, property tax, production supervisors, depreciation,
repairs, maintenance, and more.
Factory Overhead Control
Appropriate accounts
2.

XXX
XXX

FACTORY OVERHEAD APPLIED - indirect manufacturing costs that have been assigned to the goods
manufactured. Manufacturing overhead is usually applied, assigned, or allocated by using a predetermined
annual overhead rate.
Work in Process Inventory
Factory Overhead Applied

XXX
XXX

EXERCISE 2: MATERIALS
TKO consumed P450,00 worth of direct materials during May 2016. At the end of the month, the direct
materials inventory of
Flor was P25,000 lower than May 1 inventory level. How much was the direct materials procured during May
2016?
a. P475,000
c. P400,000
b. 375,000
d. 425,000

Page 2 of 6

e.
f. EXERCISE 3: ACCOUNTING FOR MATERIALS, LABOR and FACTORY OVERHEAD.
g.
Roundhouse Industries has two production departments. ABC and XYZ, and uses a job order cost
system. To determine manufacturing costs, the company applied a manufacturing overhead to production
orders based on direct labor cost using the departmental rates predetermined at the beginning of the year
based on the annual budget. The 2016 budget for the two department was as follows:
h.
i. ABC
j. XYZ
k. Direct
l. P630,000
m. P90,000
materials
n. Direct labor
o. 180,000
p. 720,000
q. Factory
r. 540,000
s. 360,000
overhead
t.
u.
Actual materials, labor cost and actual factory overhead for Job no. 676 during 2016
were as follows:
v.
Direct materials
P22,500
w.
Direct labor ABC
7,200
x.
Direct labor XYZ
10,800
y.
Actual factory overhead
28,000
z.
aa.
Journalize the transactions.
ab.
ac. EXERCISE 4: ACCOUNTING FOR MATERIALS, LABOR and FACTORY OVERHEAD.
ad.
John Wick Corporation obtains the following information from its records for the month
of August:
ae.
af.
ag. Jobs completed and sold
ah.
ai.
aj.
ak.
Jo
Jo
Jo

1.
2.

al. Direct materials

am.
P

an.
P

ao.
P

ap. Direct labor

aq.
4

ar.
5

as.
3

at. Factory overhead applied

au.
2

av.
3

aw.
2

ax. Units manufactured

ay.
5,

az.
4,

ba.
1

bb. GP rate (based on sales)

bc.
2

bd.
2

be.
3

bf.
bg. Required:
Prepare journal entries for the month of August.
Compute for the gross profit for August
bh. For the business as whole.
bi. For each job completed and sold.
bl.
bm.
bn.
bp.

cc.

bj.
bk. EXERCISE 5: INCOME STATEMENT
The following inventory data relate to Abner Corporation
bo. Inventories

bs. Finished goods

bq. Beginnin
g
bt. P90,000

bv. Work in process

bw. 80,000

by. Direct materials

bz. 95,000

cb.
Revenues and costs for the period
cd.
Sales

P900,000

br. Endi
ng
bu. P110
,000
bx. 70,0
00
ca. 90,0
00

cj.
1.
2.
3.
4.

ce.
Cost of goods available for sale
cf.
Total manufacturing costs
cg.
Factory overhead
ch.
Direct materials used
ci.
Required: Compute the following for the year.
Direct materials purchased
Direct labor costs incurred
Cost of goods sold
Gross profit

775,000
675,000
175,000
205,000

ck.
cl.
cm.

1.

2.

1.

cn. SPOILED UNITS, DEFECTIVE UNITS SCRAP MATERIALS and WASTER MATERIALS IN A
JOB ORDER COST SYSTEM.
co.
cp. SPOILED UNITS units that do not meet standards and are either sold for their salvage value
or discarded. When spoiled units are
cq.
discovered, they are taken out of production and no further work is performed on them.
cr. DEFECTIVE UNITS are units that do not meet production standards and must be processed
further in order to be salable as good
units or as irregulars.
cs. SCRAP MATERIAL are left over from the production process that cannot be put back into
production for the same purpose, but may
be usable for a different purpose or production
process or which may be sold to outsiders for a nominal amount.
ct. WASTE MATERIALS are left over from production process that has no further use or resale
value and may require cost for their
disposal.
cu.
cv. ACCOUNTING FOR SPOILED MATERIALS.
cw. TWO METHODS:
Charged to specific job used if reason for the spoilage is the job itself (e.g., exacting specifications,
difficult/complicated manufacturing process). Allowance for spoiled work should not be considered. Cost per
unit changes due to spoiled goods.
cx.
cy.
Spoiled Goods (spoiled units x selling price)
XXX
cz.
Work in Process Inventory
(spoiled units x selling price)
XXX
da.
Charged to all production used if the reason for the spoilage is considered normal to the process and the
number does not exceed the limit set by the company. Allowance for spoiled work should be considered (part
of factory overhead).. Cost per unit does not change due to spoiled goods
db.
dc.
Spoiled Goods (spoiled units x selling price)
XXX
dd.
Factory Overhead Control
XXX
de.
Work in Process Inventory (spoiled units x cost)
XXX
df.
dg.
EXERCISE 6: SPOILED MATERIALS CHARGED TO ALL PRODUCTION
dh.
Job 4444 called for the making of 4,000 with these unit costs:
di.
dj. Direct materials
dk.
dl. Direct labor
dm.
dn. Factory overhead control (includes a P1.00 allowance for spoiled work)
do.
dp. Total
dq.
dr.
ds.
When the order completed, 200 rejected units, a normal number were sold for P18.00
each.
a. Journalize the transaction using i) Charged to specific job and ii) Charged to all production method.
b. Does cost per unit changed due to spoiled goods using i) Charged to specific job? ii) Charged to all
production method?
dt.
du.
dv. ACCOUNTING FOR DEFECTIVE MATERIALS
dw.TWO METHODS:
Charged to specific job - used if reason for the spoilage is the job itself (e.g., exacting specifications,
difficult/complicated manufacturing process). Allowance for defective units should not be considered. Cost per
unit changes due to defective units.
dx.
dy.
Work in Process Inventory
XXX
dz.
Materials Inventory
XXX
ea.
Accrued Payroll
XXX

2.

1.

2.

3.

1.

2.

eb.
Factory Overhead Applied
XXX
ec.
Charged to all production - used if the reason for the spoilage is considered normal to the process and the
number does not exceed the limit set by the company. Allowance for defective units should be considered
(part of factory overhead). Cost per unit does not change due to defective units
ed.
ee.
Factory overhead control
XXX
ef.
Materials Inventory
XXX
eg.
Accrued Payroll
XXX
eh.
Factory Overhead Applied
XXX
ei.
ej.
ek.
EXERCISE 7: DEFECTIVE MATERIALS CHARGED TO ALL PRODUCTION
el.
Job 4444 called for the making of 4,000 with these unit costs:
em.
en. Direct materials
ep. Direct labor
er. Factory overhead control (includes a P1.00 allowance for defective units)
et. Total
ev.
ew.
During processing 300 units were found to be defective and required the following total additional
costs: materials P2,000; labor P4,000; and overhead P2,000
a. Journalize the transaction using i) Charged to specific job and ii) Charged to all production method.
b. Does cost per unit changed due to spoiled goods using i) Charged to specific job? ii) Charged to all
production method?
ex.
ey. ACCOUNTING FOR SCRAP MATERIALS
ez.
DIRECT MATERIALS - Traceable to specific job
fa.
Scrap/Scrap Materials
XXX
fb.
Work in Process
XXX
fc.
DIRECT MATERIALS - Not traceable to specific job.
fd.
Scrap/Scrap Materials
XXX
fe.
Miscellaneous Income
XXX
ff.
fg.
INDIRECT MATERIALS (e.g., factory supplies)
fh.
Scrap/Scrap Materials
XXX
fi.
Factory overhead control
XXX
fj.
fk.
fl.
fm.
fn. EXERCISE 8: ACCOUNTING FOR SCRAP MATERIALS
fo.
Son Ye Jin recovered P40,000 scrap materials from production. Journalize the
transaction assuming:
fp. Scrap materials came from direct materials and are traceable to Job no. 110.
fq. Scrap materials came from direct materials and are not traceable to any Job.
fr. Scrap materials came from factory supplies.
fs.
ft. ACCOUNTING FOR WASTE MATERIALS
fu.
Cost of disposal charged to all jobs
fv.
Factory Overhead Control
XXX
fw.
Accounts Payable/Cash
XXX
fx.
Cost of disposal charged to specific job
fy.
Work in Process Inventory
XXX
fz.
Accounts Payable/Cash
XXX
ga.
gb. EXERCISE 9: ACCOUNTING FOR WASTE MATERIALS
gc.
Y Corporation, chemical manufacturer, manufactures specifically for cutomers and have toxic waste
which requires special packaging before disposal. During 2016 packaging cost for disposal of toxic waste
amounted to P300,000 for Y Corporation. Journalize the transaction assuming:
a. Cost of disposal is chargeable to all jobs.
b. Cost of disposal is chargeable to Job no. 123.
gd.

eo.
eq.
es.
eu.

ge.
gf. WRAP UP EXERCISES (TRUE OR FALSE; MULTIPLE CHOICE QUESTIONS)
Both job-order and process costing systems utilize averaging concepts in computing unit costs.
The predetermined overhead rate is computed using estimates of cost and activity.
Actual manufacturing overhead costs are charged directly to the Work in Process accounts as the costs are
incurred.
4. If more overhead is applied to Work in Process than is actually incurred, then overhead will be overapplied.
5. A job order costs system identifies costs with a particular job rather than a set time period.
6. Under a job-order costing system, the peso amount of the entry involved in the transfer of inventory from
work in process to finished goods is the sum of costs charged to all jobs.
a. Started in process during the period
b. In process during the period
c. Completed and sold during the period
d. Completed during the period.
7. Which of the following is the basic document that is used to accumulate the cost of each order in job order
costing.
a. Invoice
b. Purchase Order
c. Requisition cost
d. Job Cost Sheet
8. The most common treatment of under or overapplied overhead is to close it to :
a. Work in Process
b. Retained Earnings
c. Cost of Goods Sold
d. Finished Goods.
9. Its two oclock in the morning and youve been studying job-order costing for the past three hours. You
drift off to sleep in your first dream you visit JOB ORDER COSTING LAND. You are direct labor peso and are
traveling through a giant ledger. By the time you finish your journey, which accounts will you travel
through and in what order?
a. Work In Process, Cost of Goods Manufactured, Finished Goods, and Cost of goods sold.
b. Direct labor, Work in process, Finished goods and Cost of goods sold.
c. Work In Process, Finished Gods and Cost of Goods sold.
d. Manufacturing overhead, Work in Process, Cost of goods manufactured and Finished goods.
e. Direct labor, Work In Process, Finished Goods, Cost of Goods manufactured and Cost of Gods Sold.
10. Spoiled goods may be sold at an amount higher than regular sales price
11. If spoilage in a job results is due to the exacting specification of the job, the loss resulting from the spoiled
goods should be shared by all units manufactured during the period.
gg.
gh.
1.
2.
3.

gi.