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Job Costing
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Job Costing
Job costing is a product costing method
adopted by an enterprise that provides
limited quantities of unique products
This kind of enterprise produces tailor-
made goods or services that conform to
the specifications designed by
customers
Costs can be determined separately for
each job order
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Costing under three different
method
Actual costing
Normal costing
Standard costing
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Costing system Production cost
Actual costing Actual direct materials +
Actual labour + Actual
overhead
Normal costing Actual direct material +
Actual direct labour +
Applied overhead (I.e.
Per-determined overhead
rate * actual level of
productivity)
Standard costing Standard direct material
+ standard direct labour +
applied overhead
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Which one better?
Normal product costing and standard
costing are preferable
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Reasons
Under actual costing, the product cost will be
delayed until the end of the accounting
period. However, the product cost should be
obtained beforehand for setting selling price
Since monthly productivity may vary due to
holiday periods and seasonal variation, actual
overhead is fluctuating and cannot reflect
normal production conditions
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Job-Order Costing Basic Records

Job-cost records contain all costs for a particular
product, service, or batch of products.
Materials requisitions are records of
materials used in particular jobs.
Labor time cards record the time a
particular direct laborer spends on each job.
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Job-Cost Sheet
Date Started: 1/7/20X7 Job Number: 963
Date Completed: 1/14/20X7 Units completed: 12
Cost Date Ref. Quantity Amount Summary
Direct Materials:
6 Bars 1/7 N41 24 120.00
Casings 1/9 K56 12 340.00 460.00
Direct Labor:
Drill 1/8 7Z4 7.0 105.00
1/9 7Z5 5.5 82.50
Grind 1/13 9Z2 4.0 80.00 267.50
Overhead:
Applied 1/14 9.0 mach. hrs. 180.00 180.00
Total cost 907.50
Unit cost 75.625
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Flow chart
Delivery of materials to job
Payment of wages to workers
Charging of applied overhead
Costs to work in progress



Work


In

Progress



Cost of sales
sold
indirect
direct
direct
indirect
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Accounting entries
Dr. Materials Inventory
Cr. Cash/AccountsPayable
To record the purchase of materials
Dr. WIP (direct)
Dr. manufacturing overhead (indirect)
Cr. Materials inventory
To assign direct and indirect material issued
Dr. Manufacturing wages/Factory Wages
Cr. Cash/Manufacturing wages payable
Cr. Employer Payroll Taxes payable
Cr. Fringe benefits
To record factory labour costs
Dr. WIP (direct)
Dr. Manufacturing overhead (indirect)
Cr. Manufacturing wages
To assign direct and indirect wages incurred
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Accounting entries
Dr. Manufacturing overhead
Cr. Individual expenses
To record other indirect expenses

Dr. WIP
Cr. manufacturing overhead
To apply overhead using predetermined overhead absorption rate
Dr. Finished Goods inventory
Cr. WIP
To record cost of finished goods
Dr. Cost of sales
Cr. Finished goods Inventory
To record cost of goods sold
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Accounting entries
Dr. Cash/Accounts Receivable
Cr. Sales
To record sale of finished goods
Dealing with over/under applied overheads
When monthly financial statements are prepared under and over
applied overhead is reported in the balance sheet. Under-applied
overhead is shown as a prepaid expense and over-applied
overhead is reported as unearned revenue

At the end of the year the following adjusting entry is made:
Dr. Manufacturing overheads
Cr. Cost of goods sold
To transfer over applied overheads to Cost of Goods Sold

Dr. Cost of Goods Sold
Cr. Manufacturing overheads
To transfer under-applied overheads to Cost of Goods Sold