Job-Order Costing

CHAPTER 4
 Job-Order Costing: An
Overview
Job-order costing systems are used when:
1.Many different products are produced each period.
2.Products are manufactured to order.
3.The unique nature of each order requires tracing or
allocating costs to each job, and maintaining cost
records for each job.
 Job-Order Costing: An
Overview
Examples of companies that would use
job-order costing include:
1. Boeing (aircraft manufacturing)
2. Bechtel International (large scale construction)
3. Walt Disney Studios (movie production)
Job-Order Costing – An
Example
Direct Materials
Job No. 1
Charge direct
material and
Direct Labor direct labor
Job No. 2
costs to each
job as work is
Job No. 3
performed.
 Job-Order Costing – An
Example
Manufacturing
Direct Materials Overhead,
Job No. 1 including indirect
materials and
Direct Labor
Job No. 2 indirect labor, are
allocated to all
Manufacturing Job No. 3 jobs rather than
Overhead directly traced to
each job.
The Job Cost Sheet
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-11
Date Completed
Department B3 Units Completed
Item Wooden cargo crate
Direct Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate Amount

Cost Summary Units Shipped

Direct Materials Date Number Balance
Direct Labor
Manufacturing Overhead
Total Cost
Unit Product Cost
Measuring Direct
Materials Cost

Will E. Delite
Measuring Direct
Materials Cost
Measuring Direct Labor
Costs
Job-Order Cost
Accounting
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Learning Objective 4-1

Compute a
predetermined overhead
rate.
 Why Use an Allocation
Base?
An allocation base, such as direct labor hours, direct
labor dollars, or machine hours, is used to assign
manufacturing overhead to products.

We use an allocation base because:

a)It is impossible or difficult to trace overhead costs to particular jobs.
b)Manufacturing overhead consists of many different items ranging from
the grease used in machines to the production manager’s salary.
c)Many types of manufacturing overhead costs are fixed even though
output fluctuates during the period.
Manufacturing Overhead
Application
The predetermined overhead rate (POHR) used to apply overhead to jobs is
determined before the period begins.

Estimated total manufacturing

overhead cost for the coming period
POHR =
Estimated total units in the
allocation base for the coming period

Ideally, the allocation base is a

cost driver that causes
overhead.
The Need for a POHR
Using a predetermined rate makes it
possible to estimate total job costs sooner.

Actual overhead for the period is not

known until the end of the period.
Computing Predetermined Overhead
Rates
The predetermined overhead rate is computed before the
period begins using a four-step process.
1. Estimate the total amount of the allocation base (the
denominator) that will be required for next period’s
estimated level of production.
2. Estimate the total fixed manufacturing overhead cost for
the coming period and the variable manufacturing
overhead cost per unit of the allocation base.
3. The third step is to use a cost formula to estimate the
total manufacturing overhead cost for the coming
period.
4. Compute the predetermined overhead rate.
Problem 4
Hercules Company begins operations on April 1. Information from job
cost sheets shows the following
Job # April May June Month
Completed
101 5,200 5,400 May
102 4,700 3,800 2,000 June
103 1,200 April
104 5,800 4,200 June
105 5,200 3,800 Not yet complete

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Problem 4
Each job was sold for 25% above its cost in the month following
completion
1. Compute for the balance of Work In Process Inventory at the end of
each month.
2. Compute for the balance of Finished Goods Inventory at the end of
each month.
3. Compute for the gross profit for May, June, and July.

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Problem 5
Star Wars Corporation obtains the following information from its
records for the month of August:
Jobs Completed and Sold
Job 110 Job 220 Job 330
Direct materials cost P 15,000 P 25,000 P 20,000
Direct labor cost 40,000 50,000 30,000
Factory Overhead 25,000 30,000 20,000
Units Manufactured 5,000 u 4,000 u 10,000
Gross Profit Rate 20% 25% 30%
(based on Sales)

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Problem 5
Requirement:
1. Prepare in Summary form, the Journal entries
that would have been made during the month to
record the above.
2. Prepare schedules showing the gross profit or
loss for August.
◦ A. for the business as a whole.
◦ B. for each job completed and sold.

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 Problem 11
Assume the following relates to the Candy Corporation for the month of July
Job 101 Job 102 Job 103

In Process, July 1

Materials P 40,000 P 30,000 -

Labor 60,000 40,000 -

Overhead 75,000 50,000

Cost added in July

Materials 55,000 80,000 92,000

Labor 80,000 95,000 115,000

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 Problem 10
Actual Overhead incurred in July amounted to P 375,000. Job no. 101 and 102
were completed and transferred to finished goods warehouse in July. Overhead is
applied using a predetermined overhead rate. Job 101 was sold for P 550,000.
Requirement: Compute for the following:
1. Work in process, July 1
2. Overhead assigned to production in July assuming same factory OH rate
3. Cost of goods manufactured
4. Cost of goods sold (actual)
5. Finished goods inventory, July 31
6. Work in process inventory, July 31

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