CHAPTER 15
JOB ORDER COSTING AND ANALYSIS
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
15-1, 15-14
15-1
15-9
C2. Explain job cost sheets and how
they are used in job order cost
accounting.
3, 4
15-3
15-2, 15-3
15-1
15-8
Analytical objectives:
A1 Apply job order costing in pricing
services.
2, 14
15-13
15-18
Procedural objectives:
P1. Describe and record the flow of
materials costs in job order cost
accounting.
5, 6
15-2, 15-4,
15-12
15-3, 15-6,
15-7, 15-8,
15-13, 15-17,
15-19
15-1, 15-2,
15-3, 15-5
15-8
P2. Describe and record the flow of
labor costs in job order cost
accounting
7
15-2, 15-5,
15-12
15-3, 15-6,
15-7, 15-9,
15-13, 15-17
15-1, 15-2,
15-3, 15-5
15-8
P3. Describe and record the flow of
overhead costs in job order cost
accounting.
1, 2, 8, 11
15-2, 15-6,
15-7, 15-9,
15-11, 15-12
15-3, 15-4,
15-5, 15-6,
15-7, 15-10,
15-13, 15-14,
15-15, 15-16,
15-17
15-1, 15-2,
15-3, 15-4,
15-5
15-3, 15-8
P4. Determine adjustments for
overapplied and underapplied
factory overhead.
9
15-8, 15-10
15-7, 15-11,
15-12, 15-13,
15-14, 15-15
15-1, 15-2,
15-4, 15-5
*See additional information on next page that pertains to these quick studies, exercises and problems.
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 15-4A can be completed using Excel. Problem 15-1A, 15-2A 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.
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 15.2
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
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.
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 15.11. 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.
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.
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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.