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Class Meeting 09

JOB ORDER COSTING

Riwayadi
COST ACCUMULATION METHODS
1.Job order costing
2. Process costing
3. Hybrid costing or operation costing
This method is combination of job order costing and process
costing
4. Buckflush costing
This method is applied in the company that has applied the Just In Time (JIT)
concept. JIT is using PULL SYSTEM, NOT PUSH SYSTEMS. The
objective of JIT is to minimize inventory (zero inventory)This concept is
more detail discussed in operation management.
Hybrid costing and buckflush costing will be discussed in cost management
subject. In our cost accounting, we just discuss the job order and process
costing.
Cost Tracing

Process Backflush
Job Order Hybrid Costing Costing
Costing Costing

Highly Not Detail


Detail Less Detail
detailed
APPLICATION OF JOB ORDER COSTING
 Applied for the companies that produce heterogeneous or
customized products
 Examples
Manufacturing Firms Cost Object
Furniture Product
Printing Product
Service Firms
Hospital Patient
Public Accountant Firms Client
Hotel Guest
Lawyers Client
Characteristics of Job order costing:
 Product costs are calculated for each job
 Product costs are calculated when the jobs are
completed
 Manufacturing costs are assigned to jobs using
normal costing (direct material cost and direct
labor cost are assigned based on actual cost, while
factory overhead cost based on predetermined rate
 Manufacturing costs are accumulated using job
order cost sheet, or simply cost sheet. This cost
sheet is also used as work in process and finished
goods inventory subsidiary ledger
JOB ORDER COST SHEET
ME & ME CORPORATION
Customer: Job No. :
Address : Product:
Date required:
Quantity: Date started:
Selling price: Date completed:
DIRECT MATERIALS DIRECT LABOR FACTORY OVERHEAD

Date Requisit. Amount Date Amount Date Basis Amount


Number

SUMMARY
Sales………………………………………………………………………….. xxx
Direct Material Costs…………………………………………… xxx
Direct Labor Costs……………………………………………… xxx
Factory Overhead Costs Applied …………………………… xxx
Cost of Goods Sold……………………………………………………………………. xxx
Gross profit….………………………………………………………………………….. xxx
Process Costing
 Products produced are homogenous (Cement,
Coca Cola, etc.)
 Products are produced to meet the market
 Cost of products is calculated at the end of
accounting period
 All manufacturing costs are assigned the
products using the actual costs.
 Manufacturing costs are accumulated using
the production cost report.
DIFFERENCES BETWEEN JOB ORDER AND
PROCESS COSTING
Job Order Costing Process Costing

Product Unique / customized Standardized / homogenous


/heterogenous
Example Manufacturing: printing, Manufacturing: cement, mineral
&furniture, water, soft drink, etc
Services: taylor, public Services: airlines, hotel (for
accountant firms, lawyers room)
Product cost After jobs completed At the end of period
calculation
Cost Normal costing Actual costing
assignment
Media Job order cost sheet cost of production report
Job order costing and process costing
are the two polar extremes while
operation costing represents a
hybrid costing system.
ACCOUNTING FOR JOB ORDER COSTING

Accounting for Direct Raw Materials


1. Direct raw material purchases
A document used for purchasing direct raw materials
from supplier is called Purchase Order. This document
is issued based on Purchase Requisition from other
departments
 Journal entry to record the purchase of direct raw
materials using perpetual systems is as follows:
Direct raw material inventory… xx
Cash or Account Payable…… xx

2. Direct Raw Material Usages


 A document used for using the direct raw materials is
called material Requisition
 Journal entry to record the usage of direct raw materials is
as follows:
Work In Process Inventory………xx
Direct Raw Material Inventory…… xx

Accounting for Direct Labour Cost


 Job Time Ticket is a document that is used for recording
the accrued payroll. This document provides some
information such as direct labour hours and direct labour
cost for each job
 Journal entry to record the accrued payroll is as follows:
Payroll….……………… xx
Labour Union Payable………………. xx
Personal Income Tax Payable……… xx
Payroll Payable……..………… xx

 Journal entry to assign direct labour cost to the jobs is as


follows:
Work In Process Inventory…..…. xx
Payroll…….………….………… xx
Accounting for Factory Overhead Cost
 Factory overhead cost is assigned to jobs using
predetermined rate that is calculated based on unit driver
(direct labour hours or machine hours
 Applied factory overhead cost is calculated by multiplying
actual capacity by factory overhead rates
 Journal entry to record the assignment of factory overhead
cost to jobs is as follows:
Work In Process Inventory…… xx
Factory Overhead Cost……………… xx
 Journal entry to record the actual factory overhead
cost is as follows:
Factory Overhead Cost……………xx
Deprec. Exp. Of machine ……… xx
Factory insurance expense.. xx
Indirect labour cost …. xx
Indirect raw material cost xx
 Others……………………………… xx
 When applied factory overhead is greater than
actual factory overhead, it is called over-applied
factory overhead cost and the variance is
favourable
 Journal entry to record the favourable variance is
as follows:
Factory Overhead Cost…………….. xx
Factory Overhead Cost Variance… xx
 When factory overhead cost is applied lower than
actual factory overhead cost, it is called under-
applied factory overhead cost and the variance is
unfavourable
 Journal entry to record the unfavourable variance
is as follows:
Factory Overhead Cost Variance… xx
Factory Overhead Cost……… xx
 Factory overhead variance will then be closed to
cost of goods sold if the variance is insignificant,
or distributed to Work In Process Inventory,
Finished Goods Inventory, and Cost of Goods Sold
if the variance is significant
 Journal entry to close the unfavourable factory
overhead cost variance assuming the variance is
insignificant is as follows:
Cost of Goods Sold……………………xx
Factory Overhead Cost Variance…..…… xx
Accounting for Jobs Completed
 When jobs are completed, direct raw material cost,
direct labour cost, and factory overhead cost in Job
Order Cost Sheet are totalled and the journal entry
is as follows::
Finished Goods Inventory…………. xx
Work In Process Inventory……… xx
Accounting for Cost of Goods Sold
 When the jobs are completed and submitted to the
customer, the journal entries are as follows:

a. Cash / Account Receivable…… xx


Sales..……………………… xx
b. Cost of Goods Sold…………… xx
Finished Goods Inventory……… xx
JOB ORDER COSTING’S INCOME STATEMENT

 For management purpose, calculating gross profit


or loss could be made for each job so that
management knows which jobs is most profitable
or not profitable for making decision
No. Job No. Job Quantity Sales Cost of Gross Gross
Sales Profit Profit
Percentage

Total xxx (xxx) xxx …%

Adjustment: FOH Variance – F (UF) (xxx) (xxx)

Adjusted cost of sales and gross profit (xxx) (xxx) ...%

Operating Expense:
Marketing Expenses (xxx)
Administrative and General Expenses (xxx)
Total Operating Expenses (xxx)

Net Income from Operation XXX


Profit margin (net income to sales ratio) ..%

Tabel 6 – 2 job profitability report


Exercise 1
Urang Awak Furniture produces customized products. 500
units of Job No. 100 have not yet completed at the end
of October 200X. These jobs have absorbed direct raw
materials Rp 500.000, and direct labor cost Rp 600.000.
In November, the company gets new orders 300 units of
Job No.110, and 100 units of Job No. 120.
Direct raw materials purchased for November 200X were
1.000 kg at Rp 3.000 per kg and was used for Job No.100
200 kg, Job No.110 500 kg, and Job No. 120 150 kg.
Direct labor cost that has been paid for November 200X was
Rp 4.000.000 consisted of : Job No. 100 20%, Job No.
110 60%, and remaining for Job No. 120.
Factory overhead is assigned to products 80% of direct labor
cost. Job No. 100 has been completed and submitted to the
customer as well as fully paid. Job No. 110 has also been
completed but not yet submitted to the customer. Job No.
120 has not yet been completed at the end of November
200X.
Required:
a. Determine unit cost and unit selling price for jobs that have
been completed. The company desires profit 40% of its cost
b. Determine the value of ending work in process inventory,
ending finished goods inventory, and ending direct raw
material inventory
c. Prepare income statement if marketing and administrative
expenses for November 200X were Rp 500.000
d. Prepare job order cost sheet for Job No. 100
e. Make journal entries needed
Exercise 2
Beginning WIP for Job 10 and11 as follows:
Job 10 Job 11
Quantities ordered 500 units 1.000 units
DRMC Rp 500.000 Rp 800.000
DLC 400.000 700.000
FOH 240.000 420.000
Jobs ordered by customers for current month::
Job 12 800 units
Job 13 300 units
Job 14 600 units

DRMC and DLC assigned for each job excluding


FOH for this month:
Job 10 Job 11 Job 12 Job 13 Job 14
DRMC 100.000 400.000 1.000.000 800.000 200.000
DLC 150.000 300.000 900.000 600.000 250.000
FOH is assigned to jobs based on DLC
Job 10, 11, and 12 have been completed and
submitted to the customers
Required:
a. Calculate cost per unit for completed jobs
b. Make journal entries needed
Class Meeting 10

JOB ORDER COSTING


(continuing)

Riwayadi
Products are Processed Through More Than One
Department
 Cost of products are calculated for each department
 WIP Inventory account are made for each departmnet
 Units completed for Dept. I will be transferred to Dept. II
and the entry is as follows:
Work In Process Inventory – Dept. II…..… xx
Work In Process Inventory – Dept. I… xx
 Products that have been completed at Departemen
III then are transferred to finished goods
warehouse using journal entry as follows:
Finished goods inventory ……… xx
Work In Process Inventory - Dept. III… xx
Exercise 2
Nice Bag Company produces customized school girl
nice bags. The bags are produced through 3
departments: Patterning, Cutting, and Tailoring.
Transactions for November 200X are as follows:
The company gets orders 50 units of Rupawan Bag,
100 units of Pesona Bag, 20 units of Menawan
Bag. The usage of direct raw materials were as
follows:
Patterning Tailoring Total
Job Order
Rupawan Rp 4.000.000 - Rp 4.000.000
Pesona “ 10.000.000 Rp 6.000.000 “ 16.000.000
Menawan “ 2.000.000 - “ 2.000.000
Total Rp 16.000.000 Rp 6.000.000 Rp 22.000.000
Direct labor costs were as follows:

Job Patterning Cutting Tailoring Total


Order
Rupawan Rp 4.000.000 Rp 2.000.000 Rp 3.000.000 Rp 9.000.000
Pesona “ 4.000.000 “ 5.000.000 “ 3.000.000 “ 2.000.000
Menawa “ 2.000.000 “ 1.000.000 “ 3.000.000
n
Total Rp 10.000.000 Rp 8.000.000 Rp 6.000.000 Rp24.000.000
Factory overhead is assigned to job using the following rates:

Department Cost driver Overhead Rate

Patterning Direct labor hours (DLH) Rp 10.000/ JKL


Cutting Direct labor hours (DLH) Rp 5.000/ JKL
Tailoring Machine hours (MH) Rp 1.000 / JM
The actual capacity and actual factory overhead cost were
as follows:

Department Actual Capacity Actual FOH

Patterning 700 DLH Rp 7.800.000


Cutting 2.000 DLH Rp 10.100.000
Tailoring 2.500 MH Rp 2.950.000
The usage of direct labor hours and machine hours for
each job was as follows:

Department Rupawan Pesona Menawan


Patterning 200 DLH 400 DLH 100 DLH
Cutting 600 DLH 1.000 DLH 400 DLH
Tailoring 1.000 MH 1.500 MH -
Rupawan bag and Pesona bag have been
completed and submitted to the customers.
Rupawan bag was just completed at Cutting
Department and transferred to Tailoring
Department.
Required:
Make journal entries needed to record all
transactions above. Factory overhead variance is
closed to cost of goods sold.
Journal Entries
1. To record the usage of direct raw material for each department
WIP Inventory – Patterning Dept.……….… 16.000.000
WIP Inventory – Tailoring Dept…..……….. 6.000.000
Direct Raw Material Inventory………… 22.000.000

2. To record the assignment of direct labor cost to each department


WIP Inventory – Patterning Dept. ……….… 10.000.000
WIP Inventory – Cutting Dept…………..…... 8.000.000
WIP Inventory – Tailoring Dept. …….…….. 6.000.000
Payroll………………………………… 24.000.000
3. To record the assignment of factory overhead to each
department
WIP Inventory – Patterning Dept………… 7.000.000
WIP Inventory - Cutting Dept. ……………. 10.000.000
WIP Inventory – Tailoring Dept…….… 2.500.000
FOH – Patterning Dept. 7.000.000
FOH – Cutting Dept. 10.000.000
FOH – Tailoring Dept. 2.500.000
Dept. Actual FOH Rate Applied FOH
Capacity
Patterning 700 JKL Rp 10.000/JKL Rp 7.000.000
Cutting 2.000 JKL Rp 5.000 / JKL 10.000.000
Tailoring 2.500 JKL Rp 1.000 / JM 2.500.000
Rp 19.500.000

4. To record the actual factory overhead cost


FOH – Patterning Dept………… 7.800.000
FOH – Cutting Dept.……………. 10.100.000
FOH – Tailoring Dept…………… 2.950.000
Various accounts credited…..……………… 20.850.000
5. To record FOH variance for each department
FOH Variance – Patterning Dept…….…… 800.000
FOH Variance – Cutting Dept. …………… 100.000
FOH Variance - Tailoring Dept. .………… 450.000
FOH – Patterning Dept…….…… 800.000
FOH – Cutting Dept. 100.000
FOH – Tailoring Dept..… 450.000

Calculation:
Department Actual FOH Applied FOH Variance
Patterning Rp 7.800.000 Rp 7.000.000 Rp 800.000 UF
Cutting “ 10.100.000 “ 10.000.000 “ 100.000 UF
Tailoring “ 2.950.000 “ 2.500.000 “ 450.000 UF
6. To close FOH variance to cost of goods sold
Cost of Goods Sold…….………… 1.350.000
FOH Variance – Patterning Dept. ……… 800.000
FOH Variance – Cutting Dept.……….. 100.000
FOH Variance – Tailoring Dept.……….. 450.000

7. To record jobs completed at Patterning Dept. and transferred to


Cutting Department
WIP Inventory – Cutting Dept. ……..… 33.000.000
WIP Inventory – Patterning Dept…………..…… 33.000.000
Cost Rupawan Pesona Menawan Total
Element
DRM cost 4.000.000 10.000.000 2.000.000 16.000.000
DL cost 4.000.000 4.000.000 2.000.000 10.000.000
FOH cost 2.000.000 4.000.000 1.000.000 7.000.000
Total 10.000.000 18.000.000 5.000.000 33.000.000

8. To record the jobs completed at Cutting Dept. and transferred to


Tailoring Dept.
WIP Inventory – Tailoring Dept……..…51.000.000
WIP Inventory – Cutting Dept…………… 51.000.000
Cost Rupawan Pesona Menawan Total
Elements
Cost from 10.000.000 18.000.000 5.000.000 33.000.000
Patterning
Dept.
Cutting
Dept.’s Cost
DL cost 2.000.000 5.000.000 1.000.000 8.000.000
FOH cost 3.000.000 5.000.000 2.000.000 10.000.000
5.000.000 10.000.000 3.000.000 18.000.000
Total 15.000.000 28.000.000 8.000.000 51.000.000
9. To record the jobs completed at Tailoring Dept.
Finished Goods Inventory……… 57.500.000
WIP Inventory – Tailoring Dept………… 57.500.000

10. To Record cost of goods sold (Rupawan Bag and


Pesona Bag).
Cost of Goods Sold……... 57.500.000
Finished Goods Inventory… 57.500.000
Cost Rupawan Pesona Menawan Total
Cost from 15.000.000 28.000.000 43.000.000 8.000.000
Cutting
Tailoring
Cost:
DRM cost 6.000.000 6.000.000
DL cost 3.000.000 3.000.000 6.000.000
FOH cost 1.000.000 1.500.000 2.500.000
Sub Total 4.000.000 10.500.000 14.500.000 18.000.000
Product Cost 19.000.000 38.500.000 57.500.000 8.000.000
Production 2.000 unit 400 unit
Unit cost Rp 9.500 Rp 93.750
ACTIVITY-BASED JOB ORDER COSTING

 THE ASSIGNMENT OF DRMC AND DLC IS


SIMILIAR BETWEEN VOLUME-BASED JOB
ORDER COSTING AND ACTIVITY-BASED
JOB ORDER COSTING
 FOH IS ASSIGNED TO JOBS USING UNIT
DRIVER FOR VOLUME-BASED JOB ORDER
COSTING AND USING UNIT AND NON-UNIT
DRIVER FOR ACTIVITY-BASED JOB ORDER
COSTING
DRMC DLC
Assignment of
DRMC and DLc
to Job using
VBC and ABC

Job 1 Job 1
FOH
Assignment of
FOH to Job using
VBC
Cost Pool :
Plant / Producing Dept.

Unit driver

Job 01 Job 02
FOH
Assignment of
FOH to Job using
ABC
Cost Pool:
Activity

Unit and non-


unit driver

Job 01 Job 02
Exercise
volume- and activity-based job order costing
Job 1 Job 2
Quantities ordered 100 units 500 units
DRMC $ 500.000 $ 1.000.000
DLC 400.000 800.000
FOH activities:
no. of setups 40x 10x
no. of inspections 15x 5x
no. of orders 7x 3x
machine hours 100 400
Actual FOH cost was as follows:
 Setup cost $ 300.000
 Inspection cost $ 350.000
 Purchasing cost $ 250.000
Required:
a. Determine cost per unit for each job using VBC
assuming the FOH rate is $ 2.000 per MH
b. Determine cost per unit for each job using ABC
assuming the FOH rate is as follows:
1)Setup rate $ 5.000 per setup 2) inspection rate $ 20.000
per inspection and 3) purchase rate $ 30.000 per order
c. Make journal entries needed using VBC and ABC

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