Financial and Managerial Accounting, 8e
15-1
CHAPTER 15
JOB ORDER COSTING AND ANALYSIS
Related Assignment Materials
Student Learning Objectives
Questions
Quick
Studies*
Exercises*
Problems*
AA and
BTN
Conceptual objectives:
C1. Describe important features of job
order production.
10, 11, 12,
13
15-1, 15-3
15-1
BTN 15-2, BTN 15-3,
BTN 15-4, BTN 15-5
C2. Explain job cost sheets and how
they are used in job order costing.
3, 4
15-2, 15-15
15-2, 15-3
BTN 15-2, BTN 15-5,
BTN 15-6
Analytical objectives:
A1 Apply job order costing in pricing
services.
2, 14
15-13, 15–14
15-18, 15–19
Procedural objectives:
P1. Describe and record the flow of
materials costs in job order
costing.
5, 6
15-4, 15-10
15-4, 15-5,
15-6, 15-7,
15-8, 15-13,
15-1, 15-2,
15-3, 15-5, SP
GL 15-1
AA 15-1, AA 15-2,
AA 15-3, BTN 15-6
*See additional information on next page that pertains to these quick studies, exercises, and problems.
SP refers to the Serial Problem
AA refers to Accounting Analysis
Financial and Managerial Accounting, 8e
Additional Information on Related Assignment Material
See Chapter 1 of the Instructor’s Resource Manual for more information on materials for this text available in
Connect.
Connect
Available on the instructor’s course-specific website, Connect:
• All numerical Quick Studies, all Exercises and Problems Set A.
o Connect also provides algorithmic versions for Quick Study, Exercises, and Problems.
• General Ledger Problems
Hints/Guided Examples
Please note that the Guided Examples are labeled as “Hints” in Connect assignments. The animated PowerPoints without
the video and audio functions for the Guided Examples are also available in the Connect Instructor Library and Exercise
Presentations. These are indicated in the Related Assignment Materials grid on page 1 in blue bold font.
Need-to-Know Videos
Materials Cost Flows and Documents
1:00
Materials Cost Flows – Journal Entries
0:48
Describe and record the flow of labor costs in job order costing.
0:41
Labor Cost Flows – Journal Entries
0:41
Describe and record the flow of overhead costs in job order costing.
Apply Estimated Overhead – Illustration
1:22
Record Actual Overhead
2:19
Determine adjustments for overapplied and underapplied factory overhead.
LO
Need–to-Know
Title
Time
C2
15-1
Job Cost Sheet
1:01
P1
15-2
Recording Direct Materials
1:04
P2
15-3
Recording Direct Labor
0:53
P3
15-4
Recording Applied Overhead
1:51
P3
15-5
Recording Actual Overhead
1:30
P4
15-6
Adjusting Overhead
1:56
Concept Overview Videos, (COV’s)
LO
Title
Time
C1
Describe important features of job order production.
Job Order Production
1:25
Production Activities in Job Order Costing
1:07
Cost Flows
1:01
C2
Explain job cost sheets and how they are used in job order costing.
Job Cost Sheet
0:56
Job Cost Sheet – Cost Flows
2:03
A1
Apply job order costing in pricing services.
Pricing for Services
1:48
Financial and Managerial Accounting, 8e
15-3
Adjust Underapplied or Overapplied Overhead
1:09
Adjust Underapplied or Overapplied Overhead – Illustration
0:51
Synopsis of Chapter Revision
NEW opener—HoopSwagg and entrepreneurial assignment.
Revised discussions of manufacturing costs and link between job cost sheets and general ledger.
Added graphic linking job cost sheets and general ledger accounts.
Enhanced exhibit of four-step overhead process.
Added formula for computing applied overhead.
Chapter Outline
I. Job Order Costing
A. Cost accounting system
1. Accumulates manufacturing costs and assigns them to products and services.
2. Provides timely information about inventories and costs helpful in managers’ efforts to control
costs and determine selling prices.
3. Two basic types of cost accounting systems are job order costing and process costing.
a. Job Order Production—producing products or providing services individually designed to
meet the needs of a specific customer (special orders).
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.
2. Job Cost Sheet—separate record maintained for each job used to record costs.
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.
II. Materials and Labor Costs Flows
1. Cost Flows and Documents—the three cost components and documents used to account for
them are:
Materials Cost Flows and Documents
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
c. Subsidiary ledger for the Raw Materials Inventory account.
2. Materials Purchases – includes direct and indirect materials. Updates to individual materials
15-5
ledger cards. Debit Raw Materials Inventory to increase.
3. Materials Use (Requisition)
a. Materials Requisition⎯document identifying the type and quantity of material needed in
production. Job number is also identified on direct materials requisitions.
b. 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.
4. Labor Cost Flows and Documents
III. Overhead Costs
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 Rate
i. Requires an estimated of total overhead cost and an allocation factory such as
total direct labor, total labor hours, or total machine hours.
c. Step 2: Apply Estimated Overhead to Specific Jobs
i. Predetermined overhead rate times actual activity where the activity is the
allocation base such as direct labor cost, direct labor hours, machine hours.
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.
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.
15-6
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
6. 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
7. Schedule of Cost of Goods Manufactured
a. Similar to statement covered in chapter 14.
b. Key difference: total manufacturing costs include overhead applied rather than actual
overhead costs.
III. Decision Analysis—Pricing for Services
A. Service providers also use job order costing.
B. Procedure to determine:
1. Determine direct labor costs
15-8
Chapter 15 Alternate Demo Problem
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
Finished Goods Inv. 548,000
Factory Overhead
Actual Overhead 98,000
96,000 Applied Overhead
Required:
1. Prepare a manufacturing statement for Superior Company for 2019.
15-8
Chapter 15 Solution: Alternate Demo Problem
SUPERIOR MANUFACTURING COMPANY
Manufacturing Statement
For Year Ended December 31, 2019
Direct materials used …………………………………….
$280,000
Direct labor …………………………………………………..
120,000
Factory Overhead Applied ……………………………..
96,000
Total manufacturing costs …………………………….
496,000
Work in Process Inventory 1/1/19……………….
Total goods in process during the year ………….
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