Accounting principles, 13th edition ch20

Accounting Principles
Thirteenth Edition
Weygandt Kimmel Kieso

Chapter 20

Job Order Costing
Prepared by

Coby Harmon

University of California, Santa Barbara
Westmont College


Chapter Outline
Learning Objectives
LO 1 Describe cost systems and the flow of costs in a job
order system.
LO 2
Use a job cost sheet to assign costs to work in
process.
LO 3
Demonstrate how to determine and use the
predetermined overhead rate.
LO 4
Prepare entries for manufacturing and service
jobs completed and sold.
LO 5
Distinguish between under-and overapplied
manufacturing Copyright

overhead.
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Cost Accounting Systems
Cost Accounting
Involves measuring, recording, and reporting product
costs
Accounts are fully integrated into general ledger
Perpetual inventory system provides immediate, up-todate information on cost of a product
Two basic types: (1) a process order cost system and (2)
a job order cost system
LO 1

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Cost Accounting Systems
Process Cost System
Used when a large volume of similar products are
manufactured - (cereal, refining of petroleum,
production of ice cream)
Costs are accumulated for a time period – (week or
month)
Costs are assigned to departments or processes for a
specified period of time

LO 1

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Process Cost Systems
Potato Chips Production
1. Harvest

2. Clean

ILLUSTRATION 20.1
Process cost system

3. Slice

ILLUSTRATION 2.1
Process cost system

4. Fry

LO 1

5. Bag

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Cost Accounting Systems
Job Order Cost System
Costs are assigned to each job or batch
Important feature: Each job or batch has its own
distinguishing characteristics
Objective is to compute cost per job
Measures costs for each job completed – not for set
time periods

LO 1

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Job Order Cost System
Illustration shows the recording of costs in a job order cost
system for Disney as it produced two different films.

LO 1

ILLUSTRATION 20.2
Job order cost system for Disney

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Cost Accounting Systems
Job Order Cost Flow
Flow of costs parallels physical flow of materials as
they are converted into finished goods
Manufacturing costs are assigned to Work in Process
(WIP) Inventory account
Cost of completed jobs is transferred to Finished Goods
Inventory account
When units are sold, cost is transferred to Cost of
Goods Sold account
LO 1

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Job Order Cost Flow
Basic overview of flow of costs in a manufacturing setting for
production of a fire truck.

ILLUSTRATION 20.3
Flow of costs in job order costing
LO 1

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Accumulating Manufacturing Costs
Raw Material Costs
Illustration: Wallace Company purchases 2,000 lithium
batteries (Stock No. AA2746) at $5 per unit ($10,000) and 800
electronic modules (Stock No. AA2850) at $40 per unit
($32,000) for a total cost of $42,000 ($10,000 + $32,000). The
entry to record this purchase on January 4 is:
Jan. 4 Raw Materials Inventory 42,000
Accounts Payable
42,000

LO 1

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Accumulating Manufacturing Costs
Factory Labor Costs
Consists of three costs:
1. Gross earnings of factory workers,
2. Employer payroll taxes on these earnings, and
3. Fringe benefits (such as sick pay, pensions, and
vacation pay) incurred by the employer.

LO 1

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Accumulating Manufacturing Costs
Factory Labor Costs
Illustration: Wallace incurs $32,000 of factory labor costs. Of
that amount, $27,000 relates to wages payable and $5,000
relates to payroll taxes payable in February. The entry to
record factory labor for the month is:
Jan. 31 Factory Labor32,000
Factory Wages Payable
27,000
Employer Payroll Taxes Payable

LO 1

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5,000

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Accumulating Manufacturing Costs
Manufacturing Overhead Costs
a. Many types of overhead costs


Property taxes, depreciation, insurance, and
repairs related to the manufacturing process

b. Costs unrelated to manufacturing are expensed
c. Costs related to manufacturing process are
accumulated in Manufacturing Overhead account


LO 1

Manufacturing overhead subsequently assigned to
work in process
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Accumulating Manufacturing Costs
Manufacturing Overhead Costs
Illustration: Using assumed data, the summary entry for
manufacturing overhead in Wallace Manufacturing is:
Jan. 31 Manufacturing Overhead 13,800
Utilities Payable
4,800
Prepaid Insurance
2,000
Accounts Payable (for repairs)
2,600
Accumulated Depreciation
3,000

Property Taxes Payable
1,400
LO 1

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DO IT! 1 Accumulating Manufacturing Costs
During the current month, Ringling Company incurs the
following manufacturing costs:
a) Raw material purchases of $4,200 on account.
b) Factory labor of $18,000. Of that amount, $15,000 relates
to wages payable and $3,000 relates to payroll taxes
payable.
c) Factory utilities of $2,200 are payable, prepaid factory
insurance of $1,800 has expired, and depreciation on the
factory building is $3,500.
Prepare journal entries for each type of manufacturing cost.
LO 1

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DO IT! 1 Accumulating Manufacturing Costs
Prepare journal entries for each type of manufacturing cost.
a) Raw material purchases of $4,200 on account.

Raw Materials Inventory
Accounts Payable

4,200
4,200

b) Factory labor of $18,000. Of that, $15,000 relates to wages
payable and $3,000 relates to payroll taxes payable.
Factory Labor 18,000
Factory Wages Payable
15,000
Employer Payroll Taxes Payable
LO 1

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3,000
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DO IT! 1 Accumulating Manufacturing Costs
Prepare journal entries for each type of manufacturing cost.
c) Factory utilities of $2,200 are payable, prepaid factory
insurance of $1,800 has expired, and depreciation on the
factory building is $3,500.
Manufacturing Overhead 7,500
Utilities Payable
2,200
Prepaid Insurance
1,800

Accumulated Depreciation
3,500

LO 1

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Assigning Manufacturing Costs
Assigning manufacturing costs to work in process
results in the following entries.
1. Debits made to Work in Process Inventory
2. Credits made to
a. Raw Materials Inventory
b. Factory Labor
c. Manufacturing Overhead

LO 2

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Assigning Manufacturing Costs
Job Cost Sheet
a. Used to record costs chargeable to specific jobs
b. Constitutes subsidiary ledger for work in process

account
c. Each entry to Work in Process Inventory must be
accompanied by a corresponding posting to one or
more job cost sheets

LO 2

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ILLUSTRATION 20.4
Job cost sheet
LO 2

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Raw Material Costs
a. Assigned to a job when materials are issued in
response to requests.
b. Materials requisition slip

LO 2



Written authorization for issuing raw materials



May be directly issued to use on a job - direct
materials (charged to Work in Process Inventory)



May be considered indirect materials – charged
to Manufacturing Overhead

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ILLUSTRATION 20.5
Materials requisition slip
LO 2

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Raw Material Costs
Illustration: Wallace uses $24,000 of direct materials and
$6,000 of indirect materials in January, the entry is:
Jan. 31 Work in Process Inventory 24,000

Manufacturing Overhead 6,000
Raw Materials Inventory
30,000
Raw Materials Inventory
42,000 30,000

Work in Process Inventory
24,000
Manufacturing Overhead
13,800
6,000

LO 2

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ILLUSTRATION 20.6
Job cost sheets–posting of
direct materials

Post individual
direct
materials
requisition
slips to job
cost sheets

LO 2

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Factory Labor Costs
a. Assigned to jobs on basis of time tickets
b. Time tickets are prepared when work is performed
c. Time tickets indicate:

LO 2



Employee



Hours worked



Account and job charged



Total labor cost

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