Management

Accounting
BBAP2103
Chapter 3
Job Order Costing
Introduction

Costs product information needed for

planning, budget preparation, cost
control and decision making
Used in Profit-Oriented Company and
Non-Profit-Oriented Company
Product Costing

Involves measuring, recording and

reporting of product costs
Directly effect company profit
Used to determine product costs and
quantity that will be produced
Types of Product Costing
Job Order Costing
Process Costing
Related account involved
Job-Order Costing (JOC)

Many products produce in a time

Every cost of DM, DL and MO will
assigned to every product
Exm : Levis Strauss Company produce
many types of cloths for every month.
Cost of each product will recorded
separately.
Account record more complex.
Document Used id JOC
System
Job Cost Sheet
Prepared for DM, DL & MO involve in each
product manufactured
Cost for DM, DL & MO have a single column
to record each involved in product.
Example for Job Cost Sheet
Document Used id JOC
System (cont.)
Materials Acquisition Form
Used to allow the materials to be taken and
transfer to production department
Must be initial by authorized person
Content of the form : Type of material, price
& quantity out
Advantage : To record in-out of materials
Example of Materials Acquisition Form
Document Used id JOC
System (cont.)
Time Ticket
Record time used in productions
Will fulfilled by worker that involved in
production activities
Example of Time Ticket
Application of
Manufacturing Overhead
Cost
Application of overhead cost is the
process of allocating cost to job or
product.
MO cost difficult to determine because
Difficult to allocate various overhead cost to
each product
Involved many types of manufacturing
overhead costs
Application of
Manufacturing Overhead
Cost (cont.)
Solution : Use Allocation Process method
that chose Allocation Base
Allocation Base is the way to eliminate
used of Direct-Labor Hours (DLH) or
(Machine-Hours) for product cost
Allocation Base also used to determine
Predetermined Overhead Rate, POR
Application of
Manufacturing Overhead
Cost (cont.)
POR calculate by divided Estimated of
Total Manufacturing Overhead Cost to
Estimates of Allocation Base
POR done at the beginning of the year to
estimate overhead cost will in involved
POR used to determine Absorbed
Overhead @ Overhead Applied to a
Particular Job
Application of
Manufacturing Overhead
Cost (cont.)
Absorbed Overhead calculation
=POR x Allocation Base Involved In Job
Example : Total manufacturing overhead
costs is RM240,000 and total DLH is
44,000. At the year, 1,500 used in
production.
Application of
Manufacturing Overhead
Cost
POR(cont.)
is
= Total MO Cost Total DLH
= RM240,000 44,000 DLH
= RM5.45 per hour
Allocation Base is
= POR x DLH Used
= RM5.45 x 1,500 hours
= RM8,175.000
Purchase and Use of
Raw Material
Any purchases of materials must be recorded in
Raw Materials Account. The transaction as
follow
Debit : Ram Materials Account
Credit : Payable Acc / Cash / Bank
Example, Company ABC purchase materials at
cost of RM23,000 via credit term. The journal
entry as follow:
Debit : Raw Materials Account RM23,000
Credit : Payable Account RM23,000
Purchase and Use of
Raw Material (cont.)
Acquisition of Direct & Indirect Materials
Assume Company ABC used RM17,000 of
direct material and RM2,500 of indirect
materials. The journal entry as follow:-
Debit : WIP (direct materials) 17,000
Debit : MO (indirect material) 2,500
Credit : Raw Material 19,500
The account record as follow:-
 Raw Materials Work In Progress Manufacturing Overhead
Bal 5,000 WIP 17,000 AB R.M 2,500
Pur 23,000 MO 2,500 12,000
CD 5,000

Materials Acquisition Form

Indirect Material 2,500
Direct Materials AB 12,000
Direct Materials CD 5,000

Job Cost Sheet Job Cost Sheet

Job AB Job CD
Indirect Material 12,000 Indirect Material 5,000
Use of Labor
Type of labor : Direct labor (record in
WIP) and Indirect labor (record as MO
cost)
Assume direct labor cost is RM20,820
and indirect labor cost is RM3,024.
Journal entry as follow-
Debit : WIP 20,820
: MO 3,024
Credit : Wages & Salaries Payable 24,024
The account record as follow:-
Wages & Salaries Payable Work In Progress Work In Progress
WIP 20,820 AB R.M 2,500
MO 3,204 12,000 WSP
CD 5,000 3,024
Labor 20,820

Time Ticket
Direct Labor Hours:
Job AB 1,125
Job CD 610
Hourly rate of wages & salaries RM 12.00
Indirect labor cost RM 3,024
Total Direct Labor Cost::
Job AB RM 13,500
Job CD RM 7,320

Job Cost Sheet Job Cost Sheet

Job AB Job CD
Direct Material 12,000 Direct Material 5,000
Driect Labor 13,500 Direct Labor 7,320
Use of Factory Overhead
All types of cost exclude direct materials and
direct labor
Recording Actual Overhead Cost
Assume there are costs involved in the period
Utilities 4,500
Rental of factory equipment 15,000
General maintenance cost 3,000
Total Cost 22,500

Accumulated depreciation 4,400

Prepaid insurance 1,200
Tax payable 1,800
Total cost 7,400
Use of Factory Overhead
(cont.)
The journal entry as follow:
Debit : Manufacturing Overhead 22,500
Credit : Payable Account 22,500

Debit : Manufacturing Overhead 7,400

Credit : Acc. Depreciation 4,400
Prepaid insurance 1,200
Payable tax 1,800
Use of Factory Overhead
(cont.)
Assume Company ABC have RM752,000 for
manufacturing overhead cost, 40,000 DLH,
the POR calculation as follow:-
= Total MO Cost DLH
= RM752,000 40,000 DLH
= RM18.80 per hour
The account record as follow:-
 Work In Progress Manufacturing Overhead
RM AB 12,000 RM 2,500 WIP AB 21,150
RM CD 5,000 Wages SP WIP CD 11,468
DL AB 13,500 3,024 Balance
DL CD Acc.Pybl 2,986
7,320 22,500
MO AB 21,150 Acc.Dep 4,400
MO CD 11,468 Pre.Insur. 1,200
Tax Pybl 1,800
Time Ticket
Direct Labor Hours:
Job AB 1,125
Job CD 610
Predetermined Overhead Rate RM 18.80
Overhead Absorbed into WIP
Job AB (1,125 H x RM18.80) 21,150
Job CD (610 H x RM18.80) 11,468
Total 32,618

Job Cost Sheet Job Cost Sheet

Job AB Job CD
Direct Material 12,000 Direct Material 5,000
Driect Labor 13,500 Direct Labor 7,320
M. Overhead 21,150 M. Overhead 11,468
Total 46,650 Total 23,788
Problem of Overhead
Over and under
Absorption
Cost that recorded in WIP and actual
cost is different WIP record the
estimated cost
The different cost in WIP recorded and
actual cost called Underapplied (Under-
Absorbed) @ Overapplied (Over-
Absorbed)
Problem of Overhead Over
and under Absorption
(cont.)
If WIP > Actual Cost = Overapplied
If WIP < Actual Cost = Underapplied
If there are overapplied @ underapplied, MO
account must be adjusted
If Overapplied
Debit : COGS
Credit : MO
If Underapplied
Debit : MO
Credit : COGS
Cost of Good
Manufactured
When pro production complete, the finish
goods must be transfer to finished goods store.
At the same time, WIP Account must be
credited and Finished Goods Account debited.
Refer to the Company ABC, Assume that the
Job AB complete for the period and Job CD did
not complete for the period and carry forward
to the next period. The journal entry as follow:-
Debit : Finished Goods Acc 46,650
Credit : Work in Process Acc 46,650
Cost of Goods Sold
When the has been sold, the sales must be record.
Assume there are 800 units product for Job AB that
totaled RM46,650, and the company sold 400 of the AB
product that totaled RM32,000. The journal entry as
follow:-
Debit : Payable Acc / Cash / Bank 32,000
Credit : Sales Acc 32,000

Debit : COGS Acc 23,325

Credit : Finish Goods Acc 23,325
[(RM46,640 800) x 400 unit sold)]