JOB ORDER COSTING Job order costing is one of the basic types of the cost accounting.

Job order costing is usually produces goods based on demand from the customers. Job order costing means that the companies that produce different products on each period are known as job order costing. All the orders made by the customers are called job. The cost in the job order costing system is accumulated costs for each batch, or job. Here are some examples of the companies that are using the job order costing such as accounting firms, music studios, health-care providers, building contractors, furniture manufacturer, hospital, advertising agencies and repair shops. Majority of the companies, the products that produce is designed to meet the needs of the particular customers. Job order production or job order manufacturing (also known as customized production), which means the production of the products is response to special order. This type of productions on each product is manufactured separately. There are some example of job order production include synthetic football fields, special-order machines, custom jewelry, a factory building, artwork and wedding invitations. The principle of the customization also can be applied to both manufacturing and service companies. The example of the service companies are an interior designer remodeling an office, a wedding consultant planning and supervising a reception and a lawyer defending a client. Job order operation includes come across to the needs of customers by producing or performing routine job, no matter in services or manufacturing of setting. For the job order costing system, the tracks cost as raw materials move from the storeroom, to the production floor, to finished products. A job cost record to accumulate the direct material, direct labor and manufacturing overhead costs for each job. When work begins on the job, the company has to starts the job cost record. If the job has started but havent finished, the job cost records show costs that accumulate as costs are added to the Work in Process inventory. While, if the finished job, the company have to total up the costs and transfers from Work in Process inventory to finished goods inventory. Finally, if the jobs units are sold, the costing system will be move to the costs from finished goods inventory, an assets, to cost of goods sold (COGS), an expense.

In job order costing system there is three methods to measuring direct materials are job order sheet, materials requisition and bill of materials. To track the data of job order costing is using the job cost sheet. The most important job cost document is job cost sheet. This sheet is used to track the job number, customer information, job information like data started, complete, and shipped, individual cost information for materials used, labor, and overhead. Accounting Department records their costs on the job cost sheet, after the direct materials are being issued. Here is the sample of the job cost sheet. There is the sample of Job Cost Sheet in Appendix, Figure 1. Next, is the job order costing is also using materials requisition form. This form is to ensure that the materials costs are properly allocated to jobs in process. Besides that, materials requisition form also an agreement. A production order is issued, when an agreement is reached to the customers that concerning the quantities, price and shipment date for the order. The production department is going to prepare this form. In this form is a detailed source document that stated the type and quantity of materials that to be drawn from the storeroom, and classifies the job to which the costs of the materials are to be charged. To control the flow of the materials into production and making entries in the accounting records by using this form. Here is the sample in the Appendix, Figure 2. The other measuring direct material is bill of materials. Bill of materials is a document that lists the type and quantity of each type of direct material needed to complete a unit of product. The following is a time ticket. The time ticket is only used for the direct labor that must be associated with each particular job. In this case, the direct labor costs are applied to individual jobs is the source of the document that known as time ticket. In the time ticket, the employees have filled in a time ticket that identifies his or her name, wage rate, and the hours worked on each job. Labor costs are applied to work in process inventory based on the completion of time ticket that identifying what job the worker spent time on. There is a sample in Appendix, Figure 3.

There are two ways that are usually used to measure the costs that related with production are actual costing and normal costing. The actual cost system is the actual cost of direct materials, direct labor and overhead that used to determine the unit cost. The strict actual cost systems are seldom being used. This is because they cannot provide the accurate unit cost information based on a timely basis. The main problem with using actual costing is overhead, but then per-unit computation of the direct material and direct labor is not the problem. Then, the normal costing, which solves the problem that associated with the actual costing. To determine the unit cost of normal cost system is by adding actual direct materials, actual direct labor and estimated overhead. In the normal costing, overhead cost must be estimated and applied to production. There are three steps to describe the basics of overhead application. The first step is to calculate the predetermined overhead rate, while the next step is to apply the overhead to production throughout the year. Lastly, is to resolve the difference between the total actual overhead incurred during the year and the overhead applied to the production. To find the predetermined overhead cost, is calculated at the beginning of the year by dividing the estimated total manufacturing overhead cost for the coming period by the estimated total units in the allocation base for the coming period. The predetermined overhead rate is used to apply overhead to job is to determine before the period begins. Nevertheless, to make it possible to estimated total job costs sooner by using a predetermined overhead rate. The actual overhead of the period is not known until after the period has ended. When the actual overhead cost is in the fluctuation seasonally, then it will be lead to misleading decision makers. Here is the simplify formula of predetermined overhead cost:

After the overhead rate had been calculated, the company can begin to apply the overhead to production. Overhead applied is being determined by multiplying the predetermined overhead cost (POHR) with the actual activity. The actual amount of the

allocation based on the actual level of activity, which is called as normal costing system. The simplify formula of the overhead applied is:

Lastly, in the normal costing in the basic of overhead application is the underapplied and overapplied manufacture overhead. To differences between the overhead cost that applied to the work in process, while the actual overhead costs of a period is being identify either it is underapplied or overapplied overhead. Overhead variance is represents the differences between actual overhead and applied overhead. Underapplied overhead is occurred when the actual overhead is greater than the applied overhead, while if the actual is less than the applied it is known as overapplied overhead. Picture below is showing of differences between the underapplied and overapplied overhead.

REFERENCE 1. http://www.cengagesites.com/academic/assets/sites/3185_ch05.pdf 2.http://ebooks.narotama.ac.id/files/Accounting%20(9th%20Edition)/CHAPTER%2017 %20Job%20Order%20and%20Process%20Costing.pdf 3. http://dept.harpercollege.edu/tutoring/pdfs/ac102_ch2.pdf 4.http://accounting4management.com/measuring_dircet_materials_cost_job_order_costin g.htm 5.http://www.cliffsnotes.com/study_guide/Job-Order-Cost-System.topicArticleId21248,articleId-21222.html

APPENDIX Figure 1: Sample of Job Cost Sheet

Figure 2: Sample Materials Requisition Form

Figure 3: Time Ticket