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Chapter 19 - Job Order Costing
CHAPTER 19
JOB ORDER COSTING
Related Assignment Materials
Student Learning Objectives Questions Quick
Studies*
Exercises* Problems* Beyond the
Numbers
Conceptual objectives:
C1. Describe important features of
job order production.
10, 11, 12,
13
19-1, 19-14 19-1
19-1, 19-2,
19-4, 19-5,
19-6, 19-7,
19-9
C2. Explain job cost sheets and how
they are used in job order cost
accounting.
3, 4 19-3 19-2, 19-3
19-1 19-4, 19-7,
19-8
Analytical objectives:
A1 Apply job order costing in
pricing services.
2, 14 19-13 19-18
Procedural objectives:
P1. Describe and record the flow of
materials costs in job order cost
accounting.
5, 6 19-2, 19-4,
19-12
19-3, 19-6,
19-7, 19-8,
19-13, 19-17,
19-19
19-1, 19-2,
19-3, 19-5
19-8
P2. Describe and record the flow of
labor costs in job order cost
accounting
7 19-2, 19-5,
19-12
19-3, 19-6,
19-7, 19-9,
19-13, 19-17
19-1, 19-2,
19-3, 19-5
19-8
P3. Describe and record the flow of
overhead costs in job order cost
accounting.
1, 2, 8, 11 19-2, 19-6,
19-7, 19-9,
19-11, 19-12
19-3, 19-4,
19-5, 19-6,
19-7, 19-10,
19-13, 19-14,
19-15, 19-16,
19-17
19-1, 19-2,
19-3, 19-4,
19-5
19-3, 19-8
P4. Determine adjustments for
overapplied and underapplied
factory overhead.
9 19-8, 19-10 19-7, 19-11,
19-12, 19-13,
19-14, 19-15
19-1, 19-2,
19-4, 19-5
*See additional information on next page that pertains to these quick studies, exercises and problems.
19-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
Additional Information on Related Assignment Material
Corresponding problems in set B (in text) and set C (on book’s website), also relate to learning
objectives identified in grid on previous page. The Serial Problem for Success Systems continues in
this chapter. Problem 19-4A can be completed using Excel. Problem 19-1A, 19-2A can be
completed with Sage 50 Software.
Connect reproduces assignments online, in static or algorithmic mode, which allows instructors
to monitor, promote, and assess student learning. It can be used for practice, homework, or
exams.
Synopsis of Chapter Revision
Middleton Made Knives—NEW opener and entrepreneurial assignment
New discussion of process operations.
New discussion of differences between job order and process operations.
Moved discussion of job order costing for services.
Revised/simplified discussions of cost flows and job cost sheets.
Simplified recording of journal entries for labor costs.
Added new exhibits to show postings of product cost journal entries to general ledger
accounts and to job cost sheets.
Revised exhibits on materials and labor cost flows.
Revised discussion of time tickets to include the use of technology.
Revised text and added new exhibit on four-step process to record overhead.
Revised discussion of applying overhead.
Revised discussion of recording actual overhead.
Added new discussion and presentation of journal entries for indirect materials and
indirect labor.
Added new exhibit showing calculations for overhead applied to individual jobs.
Added new exhibit on the flow of costs to general ledger accounts, the manufacturing
statement, and the financial statements.
Added new exhibit on schedule of cost of goods manufactured
Added sustainability section—Porsche.
Added several Need-to-Know demo exercises throughout chapter.
Revised and added several end-of-chapter assignments, including two new Quick
Studies and two new Exercises.
19-2
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
Chapter Outline Notes
I. Job Order Cost Accounting
A. Cost accounting system
1. Records manufacturing activities using a perpetual inventory
system.
2. Continuously updates records for costs of materials, goods in
process, and finished goods inventories.
3. Provides timely information about inventories, and
manufacturing costs per unit of product.
4. Two basic types of cost accounting systems are job order
cost accounting and process cost accounting.
a.. Job Order Production—producing products or providing
services individually designed to meet the needs of a
specific customer (special orders).
i. The production activities for a customized product is
called a job
ii. A job lot involves producing more than one unit of a
unique product.
b. Process Operations
i. Mass production of products in a continuous flow of
steps.
ii. Designed to mass produce large quantities of
identical products. Covered in Chapter 20.
B. Production Activities in Job Order Costing
an overview of job order production activity and cost flows is
shown in Exhibit 19.2
1. Cost Flows:
a. Because they are product costs, manufacturing costs
flow through inventory accounts (Raw Materials
Inventory, Work in Process Inventory, Finished Goods
Inventory) until the goods are sold.
b. While a job is being produced, costs are accumulated in
Work in Process Inventory.
c. When the goods are completed, the accumulated costs
are transferred to from Work in Process to Finished
Goods Inventory.
d. When the Finished goods are delivered to the customer,
the accumulated costs are transferred from Finished
Goods inventory to Cost of Goods Sold
19-3
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
Chapter Outline Notes
2. Job Cost Sheet—separate record maintained for each job
used to record costs as incurred
a. Classifies costs as direct materials, direct labor, or
overhead.
b. Used by managers to monitor costs incurred to date and
to predict and control costs to complete each job.
c. Accumulated job costs are kept in the Work in Process
Inventory while goods are being produced.
d. Job cost sheets filed for all of the jobs in process make
up a subsidiary ledger controlled by the Work in Process
Inventory account in the general ledger.
e. The balance in Work in Process at any point in time is
the sum of the costs on the job cost sheets that are not
yet completed.
f. Finished job cost sheets—moved from jobs in process
file to finished jobs file (subsidiary ledger controlled by
Finished Goods Inventory) awaiting delivery to
customers.
II. Job Order Cost Flows and Reports
A. Cost Flows and Documents—the three cost components and
documents used to account for them are:
1. Materials Cost Flows and Documents
a. Receiving report—Source document used to record the
quantity and cost of items received. Materials purchased
are used as a debit to Raw Materials Inventory and a
credit to Accounts Payable.
b. Materials ledger cards (or electronic files)—perpetual
records that are updated each time units are purchased
and each time units are issued for use in production.
Serves as the subsidiary ledger for the Raw Materials
Inventory account.
c. Materials Requisitiondocument identifying the type and
quantity of material needed in production. Job number is
also identified on direct materials requisitions.
d. Job Cost Sheet—accumulates the cost of direct materials
(from materials ledger card) as they are placed into
production on a job. Recorded as a debit to Goods in
Process Inventory and a credit to Raw Materials
Inventory.
19-4
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
Chapter Outline Notes
2. Labor Cost Flows and Documents
a.
—used by employees to record hours worked. Used to
determine total labor costs for pay period. They indicate
how much time employees spent on each job and are
used to assign (direct) labor costs to specific jobs and
(indirect) to overhead. Direct labor costs are debited to
Work in Process Inventory and credited to Factory
Wages Payable
b. Job Cost Sheets—accumulates the cost of direct labor
(from time tickets and related entry) as these costs are
incurred.
3. Overhead Cost Flows and Documents
a. Overhead costs can’t be traced to individual jobs. The
accounting for overhead follows a 4 step process shown
in Exhibit 19.11. Managers must first estimate total
overhead for the coming period. We can’t wait until the
end of the period to apply overhead costs to jobs because
job order costing using perpetual inventory which
require up to date costs. The estimated overhead cost is
needed to estimate the job’s total costs before complete.
b. Step 1: Set Predetermined Overhead rates
i. Requires an estimated of total overhead cost and an
allocation factory such as total direct labor, total
labor hours, or total machine hours.
ii. Predetermined Overhead rate = Estimated overhead
costs divided by estimated activity based
iii. The allocation case should have a cause and effect
relation between the base and the overhead costs.
c. Step 2: Record Allocated Overhead (Applies Overhead)
i. Predetermined overhead rate x actual activity where
the activity is the allocation base such as direct labor
cost, direct labor hours, machine hours.
ii. The entry to record the applied overhead is a debit to
work in process inventory and a credit to factory
overhead.
iii. The overhead is allocated to each job based on the
resource the job used (rate x actual activity).
iv. At this point, estimated (allocated) overhead is
posted to the general ledger accounts (Work in
Process and Factory Overhead) and to the individual
job cost sheets.
19-5
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
Chapter Outline Notes
d. Step 3: Record Actual Overhead costs
i. Actual factory overhead costs include indirect
materials, indirect labor, supplies, utilities, adjusting
entries for depreciation on factory assets, etc.
ii. Indirect materials ledger cards in factory overhead
ledger—accumulates indirect material costs as they
are placed into production. This subsidiary ledger is
controlled by the Factory Overhead account in the
general ledger. Use of indirect materials is recorded
as a debit to Factory overhead and a credit to Raw
Materials Inventory
iii. Indirect labor card in Factory Overhead Ledger—
accumulates indirect labor costs (from time tickets
and related entry). Entry to record indirect labor
costs debits Factory Overhead and credits Factory
Wages Payable.
iv. Other sources include vouchers authorizing
payments for items such as supplies or utilities and
adjusting entries for costs such as depreciation.
Debit Factory Overhead and Credit the other
accounts such as Cash, Accounts Payable,
Accumulated Depreciation, etc.
e. Step 4: Adjusting Factory Overhead—
i. Factory Overhead T-Account
a) The debit side shows the actual amount of
factory overhead incurred during the period
based on bills received.
b) The credit side shows the amount applied during
the period that was an estimate based on the
predetermined overhead rate.
c) A debit balance in the FOH account indicated
less was applied than incurred; an underapplied
FOH amount.
d) A credit balance in the FOH account indicates
more was applied than incurred; an overapplied
FOH amount.
ii. Underapplied and Overapplied Overhead
a) Factory Overhead debit balance (underapplied
amount) is credited (closed) and debited
(charged) to Cost of Goods Sold.
b) Factory Overhead credit balance (overapplied
amount) is debited (closed) and credited to Cost
of Goods Sold.
19-6
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
Chapter Outline Notes
4. Summary of Cost Flows—Summary journal entries are used
to record cost flows as follows:
a. Into (debit) Raw Materials Inventory as acquired.
b. From (credit) Raw Materials Inventory to (debit) Work
In Process Inventory (direct materials) and (debit)
Factory Overhead (indirect materials) as good are
requisitioned. Direct material costs also accumulated on
Job Cost Sheets.
c. Into (debit) Work In Process Inventory (direct labor) and
(debit) Factory Overhead (indirect labor) as labor costs
are analyzed. Direct labor costs also accumulated on Job
Cost Sheets.
e. Into (debit) Factory Overhead as other overhead costs
are incurred.
f.From (credit) Factory Overhead and into (debit) Work In
Process as overhead costs are applied using overhead
rate.
g.From (credit) Work In Process Inventory to (debit)
Finished Goods Inventory as jobs are completed. Full
cost from Job Cost Sheets.
h.From (credit) Finished Goods Inventory to (debit) Cost
of Goods Sold as goods are sold.
i. Any under or over applied factory overhead cost is
accounted for in an adjustment to Cost of Goods Sold
and Factory Overhead
5. Schedule of Cost of Goods Manufactured Statement
a. Similar to statement covered in chapter 18.
b. Key difference: total manufacturing costs include
overhead applied rather than actual overhead costs.
III. Decision Analysis—Pricing for Services
A. Job order costing concepts and procedures are applicable to a
service setting.
B. Procedure to determine:
1. Determine direct labor costs
2. Determine the overhead based on predetermined rate(s).
3. Combine labor and overhead to obtain cost of job. Note:
service firms do not have material costs or inventory.
19-7
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
©T he McGraw-Hill Companies, Inc., 2011
Instructor’s Resource Manual, Chapter 19 41
Chapter 19 - Job Order Costing
VISUAL #19-1
Tracing Product Costs
Through a Cost Accounting System
Work in Process Finished Goods
Materials Inventory Inventory Inventory
(1) Buy Send (2) (2) Direct (7) Goods (7) Cost of (8) Goods
(Cr. A/P) materials material completed Finished Sold
to factory costs Goods
(4) Direct
labor
costs
(6) Overhead
costs
Factory Overhead Factory Payroll Cost of Goods Sold
(2) Indirect (6) Overhead (3) Labor (4) Labor (8)
material costs costs applied costs costs applied
or factory to production incurred
supplies (Cr
(4) Indirect payables)
labor costs
(5) Other
factory OH
costs incurred (Cr varies)
19-8
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Job Order Costing
VISUAL #19-2
Job Cost Sheet
Customer Build We Must, Inc. Job No. 114
Product Bracket-H3 Date Promised 10/1/xx
Quantity 200 Dates: Started 9/1/xx Completed 9/20/xx
Direct Material Direct Labor Cost Summary
Mat’l. Payroll Direct Material $ 900.00
Req’n. Summary
No. Amount Dated Dept. Amount Direct Labor 600.00
667 $ 340.00 9/2 A $ 70.00
673 180.00 9/9 A 240.00 Factory Overhead
691 200.00 9/16 B 190.00 (applied at):
623 180.00 9/23 B 100.00
150% of direct
labor cost 900.00
Total Cost $2,400.00
Totals $ 900.00 $ 600.00 Units Finished 200
Unit Cost $12.00
19-9
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 19 - Job Order Costing
Alternate Demo Problem Nineteen
The following information is the Work in Process and Factory Overhead
Accounts for Superior Company:
Work in Process Inventory
Beg Inv. 302,000
Direct Materials 280,000
Direct Labor 120,000
Overhead Applied 96,000
Costs transferred to
Finished Goods Inv. 548,000
End Inv. 250,000
Factory Overhead
Actual Overhead 98,000 96,000 Applied Overhead
Required:
1. Prepare a manufacturing statement for Superior Company for 2015.
2. Prepare the entry to adjust for under or over applied overhead.
19-10
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Education.
Chapter 19 - Job Order Costing
Solution: Alternate Demo Problem Nineteen
SUPERIOR MANUFACTURING COMPANY
Manufacturing Statement
For Year Ended December 31, 2015
Direct materials used.......................................... $280,000
Direct labor.......................................................... 120,000
Factory Overhead Applied.................................. 96,000
Total manufacturing costs................................. 496,000
Work in Process Inventory 1/1/15………………. 302,000
Total goods in process during the year............. 800,000
Work in process inventory, 12/31/15 ................. 250,000
Cost of goods manufactured..............................
$548,000
Adjusting entry for under or over-applied overhead
Factory Overhead
Actual Overhead 98,000 96,000 Applied Overhead
Under applied 2,000
Dec 31 Cost of Goods Sold 2,000
Factory Overhead 2,000
To adjust for under applied overhead costs
19-11
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Education.
