Chapter 17
Costing Systems:
Job Order Costing
Belverd E. Needles, Jr.
Marian Powers
Sherry K. Mills
Henry R. Anderson
----------Multimedia Slides by:
Dr. Paul J. Robertson
New Mexico State University
Steve Leask
New Mexico State University
Copyright Houghton Mifflin Company. All rights reserved.
17-1
Job Order Versus
Process Costing
OBJECTIVE 2
Distinguish between the different
types of product costing systems
and identify the information each
provides.
17-2
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Product Costing Systems
» Organizations have a range of
choices in order to distribute product
costs. Two ends of that spectrum are:
 Job order costing system.
 Process costing system.
17-3
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Product Costing Systems
» The kind of production process that
an organization uses determines
which of two approaches is used.
» Organizations that make large,
unique, or special-order products
typically use job order costing.
17-4
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A Job Order
» A job order is a customer order for a
specific number of specially
designed, made-to-order products.
17-5
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Job Order Costing Systems
» Under a job order costing system,
the costs of:
 direct materials
 direct labor
 manufacturing overhead
are traced or assigned to specific
job orders or batches of products.
17-6
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Process Costing Systems
» Organizations that produce large
amounts of similar products or
liquids that have a continuous
production flow use process costing.
Examples include:
 Bricks.
 Beverages.
 Paper.
 Sauces.
17-7
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Process Costing Systems
» Under a process costing system, the
cost of direct materials, direct labor,
and manufacturing overhead are
first traced to processes or work
cells and then assigned to the
products produced by that process
or work cell.
17-8
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Job Order Costing in a
Manufacturing Company
OBJECTIVE 3
Explain the cost flow in a job
order costing system for a
manufacturing company.
17-9
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Job Order Costing System
» A job order costing system records
information on the following cost
flows:
 The costs of materials and supplies are
first charged to the Materials Inventory
Control account and to the respective
materials accounts in the subsidiary
ledger.
 Labor costs are first accumulated in the
Factory Labor account.
17-10
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Job Order Costing System
 The various manufacturing overhead
costs are charged to the Manufacturing
Overhead Control account.
 As products are manufactured, the
costs of direct materials and direct
labor are transferred to the Work in
Process Inventory Control account.
17-11
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Job Order Costing System
 Manufacturing overhead costs are
applied and charged to the Work in
Process Inventory Control account using
a predetermined overhead rate. Those
charges are used to reduce the balance
in the Manufacturing Overhead Control
account and increase the Work in
Process Inventory Control account.
17-12
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Job Order Costing System
 When products and jobs are completed,
the costs assigned to them are
transferred to the Finished Goods
Inventory Control account.
 When the products are sold and
shipped, their costs are transferred to
the Cost of Goods Sold account.
17-13
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The Job Order Cost Card
OBJECTIVE 4
Prepare a job order cost card
and compute a job order’s
product unit cost.
17-14
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The Job Order Cost Card
» All costs of
 direct materials
 direct labor
 manufacturing overhead
for a particular job are accumulated
on a job order cost card.
17-15
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Job Order Costing in
a Service Organization
OBJECTIVE 5
Apply job order costing to a
service organization.
17-16
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Job Order Costing in
Service Organizations
» Job order cost cards for service
organizations can be modified to suit
their needs, and to determine selling
prices in cost-plus contracts.
» A significant difference between
service and manufacturing
organizations is that services are
rendered and cannot be held in
inventory.
17-17
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Job Costs in
Service Organizations
» Job costs in a service organization
include:
1. Labor.
2. Materials and supplies.
3. Service overhead.
17-18
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