Job Order Costing
Chapter 4
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Learning Objective 1
Describe the building-block
concepts of costing systems.
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Building-Block Concepts
of Costing Systems
Cost object
Direct costs
of a cost object
Indirect costs
of a cost object
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Building-Block Concepts
of Costing Systems
Cost Assignment
Direct
Costs
Indirect
Costs
Cost Tracing
Cost Allocation
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Cost
Object
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Building-Block Concepts
of Costing Systems
Cost pool
Cost allocation base
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Learning Objective 2
Distinguish between job
costing and process costing.
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Job-Costing and
Process-Costing Systems
Job-costing
system
Distinct units
of a product
or service
Process-costing
system
Masses of identical
or similar units of
a product or service
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Learning Objective 3
Outline a seven-step
approach to job costing.
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Seven-Step Approach
to Job Costing
Step 1:
Identify the chosen cost object.
Step 2:
Identify the direct costs of the job.
Step 3:
Select the cost-allocation bases.
Step 4:
Identify the indirect costs.
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Seven-Step Approach
to Job Costing
Step 5:
Compute the rate per unit.
Step 6:
Compute the indirect costs.
Step 7:
Compute the total cost of the job.
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General Approach to Job Costing
A manufacturing company is planning to sell
a batch of 25 special machines (Job 650) to a
retailer for $114,800.
Step 1:
The cost object is Job 650.
Step 2:
Direct costs are: Direct materials = $50,000
Direct manufacturing labor = $19,000
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General Approach to Job Costing
Step 3:
The cost allocation base is machine-hours.
Job 650 used 500 machine-hours.
2,480 machine-hours were used by all jobs.
Step 4:
Manufacturing overhead costs were $65,100.
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General Approach to Job Costing
Step 5:
Actual indirect cost rate is
$65,100 ÷ 2,480 = $26.25 per machine-hour.
Step 6:
$26.25 per machine-hour × 500 hours = $13,125
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General Approach to Job Costing
Step 7:
Direct materials
Direct labor
Factory overhead
Total
$50,000
19,000
13,125
$82,125
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General Approach to Job Costing
What is the gross margin of this job?
Revenues
$114,800
Cost of goods sold
82,125
Gross margin
$ 32,675
What is the gross margin percentage?
$32,675 ÷ $114,800 = 28.5%
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Source Documents
Job cost record
Materials requisition record
Labor time record
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Learning Objective 4
Distinguish actual costing
from normal costing.
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Costing Systems
Actual costing is a system that uses actual
costs to determine the cost of individual jobs.
It allocates indirect costs based on the actual
indirect-cost rate(s) times the actual quantity
of the cost-allocation base(s).
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Costing Systems
Normal costing is a method that allocates
indirect costs based on the budgeted
indirect-cost rate(s) times the actual
quantity of the cost allocation base(s).
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Normal Costing
Assume that the manufacturing company budgets
$60,000 for total manufacturing overhead costs
and 2,400 machine-hours.
What is the budgeted indirect-cost rate?
$60,000 ÷ 2,400 = $25 per hour
How much indirect cost was allocated to Job 650?
500 machine-hours × $25 = $12,500
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Normal Costing
What is the cost of Job 650 under normal costing?
Direct materials
Direct labor
Factory overhead
Total
$50,000
19,000
12,500
$81,500
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Learning Objective 5
Track the flow of costs
in a job-costing system.
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Transactions
Purchase of materials and other manufacturing inputs
Conversion into work in process inventory
Conversion into finished goods inventory
Sale of finished goods
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Transactions
$80,000 worth of materials (direct and
indirect) were purchased on credit.
Materials
Control
1. 80,000
Accounts Payable
Control
1. 80,000
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Transactions
Materials costing $75,000 were sent to the
manufacturing plant floor.
$50,000 were issued to Job No. 650 and
$10,000 to Job 651.
$15,000 of indirect materials were issued.
What is the journal entry?
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Transactions
Work in Process Control:
Job No. 650
Job No. 651
Factory Overhead Control
Materials Control
50,000
10,000
15,000
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75,000
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Transactions
Materials
Control
1. 80,000 2. 75,000
Work in Process
Control
2. 60,000
Manufacturing
Overhead
Control
2. 15,000
Job 650
2. 50,000
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Transactions
Total manufacturing payroll for
the period was $27,000.
Job No. 650 incurred direct labor costs
of $19,000 and Job No. 651 incurred
direct labor costs of $3,000.
$5,000 of indirect labor was also incurred.
What is the journal entry?
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