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59 views52 pagesDeleon Chapter 4 2023-09-06 15 - 09 - 05
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/ 52
a
E Chapter
4
eee BF ATI ee ee
JOB ORDER COSTING
LEARNING OBJECTIVES
Upon completion of this chapter, you should be able t
| * Define job order costing and identify the types of industries that would be
Most to use this system. *
. Demonstrate the mechanics of'a job order costing system.
| + Differentiate among the forms used in the purchase and issuance of
} materials such as a purchase requisition, a purchase order, a receiving
Teport, and a materials requisition.
«Distinguish between the periodic and perpetual cost accumulation systems
| used to account for materials issued to production and for ending materials
|
I
inventory.
© Prepare a job order cost sheet
‘The job order cost procedure keeps the-costs of various jobs or contracts separate
dori i manufacture or construction. The method is applicable to job order
work in factories, workshops, and repair shops as well as to work by builders,
construction engincers. shipbuilders, and printers. The cost unit is the Job, the
work order. or the contract;.and the records will show the cost of each. The
method presupposes the possibility of physically identifying the jobs produced and
of charging each with its own cost. -
_A variation of the job order cost method is that of costing orders by lots. A lot is
the quantity of product that can conveniently and economically be produced. For
ple, in the shoe manufacturing industry, a contract is divided into lots, each
ing from 100 t0 250 pairs of one size and style of shoe, The costs are then
umulai for each lot.
order costing. each job is an accounting unit to which materials, labor, and
y overhead costs are assigned by means of job order numbers. The cost of x
96 Cost Accounting
000factory overhead applicable to a specific job.
Cost sheets differ in form. content, and arrangement in each business. In each for,
the upper section provides space for the job number. (he name of the customer, a
description of the items to be produced, the quantity. the date started, and the date
completed. The main portion shows the cost of materials, labor, and factory
‘overhead applied in each department or cost center. An example of a job-cost
sheet is shown below.
Se ‘sheet. This mater sheet is designed to collect the costs of materials, labor, ang
wcll : OF A JOB ORDER COST SHEET
Job Cost Sheet
Description
Date Competed
Number of Units Completed
Direct Materials
Unit Price. <9 ae
Chapter 4 Job Order Costing 97
Several jobs or orders may be going through a factory at the same time, Each cost
sheet is given a job number which is placed on each material requisition and labor
time ticket used in connection with the job. These forms used for materials and
labor, numbered for the job to which they apply, are totaled daily or weekly and
entered on the cost sheets, The cost sheet eventually becomes a summary of all the
costs. including factory overhead, involved in completing a job. The cost sheets
are subsidiary records and are controlled by the work in process account. Jobs
performed on the basis of customer specifications allow the computation of a profit
‘or loss on each order. If jobs constitute production of a specific quantity for
jnventory, job order costing permits computation of a unit cost for inventory
costing purposes.
MAJOR SOURCE DOCUMENTS FOR JOB. ORDER COSTING .
1, JOB-ORDER COST SHEET
a. These records accumulate product costs of specific units or small batches
of units for both product costing and control purposes.
b. The file of job-order sheets for uncompleted jobs serves as a perpetual
book inventory and the subsidiary ledger for Wotk i Process Control.
c. A.separate cost sheet is prepared for each job.
2. MATERIALS STOCKCARD
a. These records are the perpetual book inventory of costs and quantities of
materials on hand.
b. The file of materials stock cards for unused materials is the subsidiary —
ledger for Materials Control. oe :
c. A separate stock card is prepared for each type of material on hand.
3. FINISHEDGOODS STOCKCARD = :
a. These records are the perpetual book inventory of costs and
g completed goods held for sale. :
b. The file of finished goods stock cards for unsold
edger of Finished Goods Control.
_ FACTORY OVERHEAD CONTROL COST RECORD
. These records accumulate detailed n
department) cae
b, The file of these records for the accounting peri
for Factory Overhead Control. '
cu ACCOUNTING PROCEDURES FOR MATERIALS
In manufacturing enterprises, the common practice is to record all material:
Supplies in one control. account, Materials or Stores. Procedures that affect
materials account involve the: 2
1. Purchase of materials and supplies.
2. Issuance of materials and supplies,
@. Direct materials
b. Indirect materials and supplies
Recording the purchase of materials.
The account debited when materials are
N Purchased is Materials or Stores (instead
of Purchases for periodic) and the account credited is Accounts Payable or —
Vouchers Payable. As matetials are purchased. the amount is posted on the
Material contro! account and at the same time the
individual materials ledger card/stocke:
item) showing quantity received, unit
Purchase is also entered on av
‘ard (a separate card is used for each material
COSt. and total amount.
The entry to record the purchase Of materials is:
Materials oO
Accounts Pavable ay
An entry is made on the stock card under the Received section,
The entry {0 record the return of meterias to vendor ie:
Accounts Payable ae
Materials
ary
An entry is made on the stock ean
ade ¢ ed under the
parenthesis 10 indicate reduction
jue Received section enclosed in
in quantity Chapter 4 Job Order Costing 9.
Recording the issuance of materials.
When a job is started, the materials needed for the job are issued based on the:
materials requisitions prepared by the employees. A copy of the requisition is
given to the storekeeper, which will serve as the basis for the materials to be
issued. The job order number is shown on the materials requisition together with:
the specifics on type and quantity of materials required by each job. The quantity,
unit cost, and total cost of each of the materials are entered on the issued section of
the stock card.
The entry to record the issuance of direct materials is
Work in process sooxr
Materials NRE
|:
‘An entry is made on the stock card under the Issued section and also on the
casi sheet - Materials.
The entry to record the issuance of indirect materials is
Factory overhead control XAXY
Materials xe
- ‘An entry is made on the stock card under the Issued section and also on the
overhead analysis sheet.
Shown below is an illustration of a material stock card.
Description Location in Storeroom
Maximum __ Minimum ___ Stores Ledger Acct. No.
Issued
Unit
_| Price Cost.
100 2 “gas ) Bbw
Shown below is an illustration of a material requisition slip.
er MATERIALS REQUISITION
Date No: sare
To
Quantity Deséription Unit Price | Amount |
Approved by.
Received by.
Charge to Job/Dept.
Issued by
The material contfol account may be summarized as follows:
MATERIALS
Eayenay eeeinning \. Cost of ditéct materials
‘ issued
2. Purchase of materials 2. Cost of indirect materials
1 eee issued,
% eee ae 3 post of materials returned
4. Cost of excess materials © suppliers
Returned from factory
The balance of the Materials account rey
3 * ‘presen Bae id
of the period under consideration, The amoung spe Metals inventory atthe €?
balances of all the material stock cards, lould be equal to the total o Chapter 4 Job Order Costing 101
ACCOUNTING PROCEDURES FOR LABOR
‘The accounting procedures for labor may be divided into two distinct phases:
1. Collection of payroll data, computation of earnings, calculation of payroll
taxes, and payment of wages.
v
- Distribution and allocation of labor costs to jobs, departments, and other
cost classifications.
In most factories, clock cards/time records are used to record the days or hours |
worked by each employee. These clock cards/time records are used as the basis in
computing the gross eamings of employees who are paid hourly wages. In
addition to these clock cards, time tickets are prepared for each worker to
__ determine the time spent for each job as basis in determining the amount to be
charged to direct labor cost and indirect labor cost. The time tickets fot various
__ jobs are sorted, priced, and summarized, and the time ticket hours should be
"reconciled with the clock card hours,
_ Shown below is an illustration of a job time ticket.
| Employee Name Date
Employee Number Departhent
ime started Time stopped Job number 102 : Cost Accounting —
The entry to record the payroll and the incurrence of liability is
Payroll oor
Withholding Tax Payable
SSS Premium Payable
Phil Health Contribution Payable
‘Accrued Factory Payroll
HEH
The entry to record the distribution of payroll is
Work in process
Factory Overhead Control
Payroll vooee
ik
Am entrpis made on the cost sheet under the labor section
‘The entry to record the payment of payroll is
Accrued Factory Payroll
Cash
‘The work in process account is used to charge the jobs with the direct labor cost
Factory overhead control is charged for the indirect labor cost incurred. ‘The tax
withheld is computed based on the table provided by the Bureau of Intemal
Revenue. For the SSS Premiums and Phil Health Contributions, the table is
provided by the Social Security System. :
The clearing account for the total wages due to the fi j roll
‘account summarized as follows: ie factory personnel is the pay’
PAYROLL
1. Total wages and salaries eamed by | |. Total E roll
iy aT eg a
PS in process for direct labor
overhead for indirect labor Chapter 4 Job Order Costing 103
The account used to accumulate the liability for payroll or factory overhead is the
| Accrued Factory Payroll summarized as follows:
ACCRUED FACTORY PAYROLL
1, Total amount of wages paid to factory | 1. Balancing beginning
personnel at the time crediting
j accounts payable or cash
f 2. Total amount of wages and salaries
due to factory personnel at the same
time debiting payroll.
ACCOUNTING FOR FACTORY OVERHEAD
There are two accounts used - factory overhead control and factory overhead
applied. Factory overhead control is used to accumulate actual overhead incurred,
while factory overhead applied is used to accumulate estimated factory overhead
applied to production. For factory overhead applied to production, a
predetermined rate is used and this is computed using any of the following a3 &
base:
1. Units of production
2. Direct material cost
3. Direct labor hours
4. Direct labor cost
5; Machine hours
‘The predetermined factory overhead rate computed may be used for all
ents in the company (blanket rate) or a rate may be computed for each
- department to fit the nature of the operations of the department (departmentalized
rate).
i factory overhead (Factory overhead applied) is used even if there is
" actual factory overhead because at the time the overhead is needed for costing of
completed, the actual overhead is not yet available (the actual will be known |
|
|
104 | Cost Accour
only at the end of the month). ‘The computation of the cost of each job will be
done upon the completion of the job and this may be during the first week, second
week, or third week of the month, and at this time, the actual overhead is not yet
available because some of the items included in the actual overhead will be known
only at the end of the month.
As items in the factory overhead control account are incurred, the Factory
Overhead Control account is debited. The applied factory overhead entered on the
Job order cost sheet for each job is the basis for the following entry:
Work in process 200m
Applied Factory Overhead 000
An entry is made on the cost sheet - factory overhead section.
Some actual overhead costs, such as indirect material
taxes, are debited to Factory Overhead Control as they are incurred. Other
overhead costs, such as depreciation and expired insurance are debited to Factory
Overhead Control when adjusting entries are recorded.
s, indirect labor, and payroll
The controlling account for accumulating the indirect charges incurred in
production is:
MANUFACTURING OVERHEAD CONTROL
1, Cost of indirect materials and | 1. Total debit footing at the end of the
supplies issued from the warehouse at accounting period when closing the
the same time crediting materials, books.
2. Cost of indirect labor at the same
time crediting payroll.
3. Cost of indirect expense purchased
from outsiders
4. Cost of other indirect expense
incurred by the company. Chapter 4 Job Order Costing 105
Manufacturing overhead applied - account used for accumulating the total
overhead charged to production during period. :
MANUFACTURING OVERHEAD APPLIED
. Total credit footings at the end of the] 1. Cost of overhead allocated to
accounting period upon closing of production and computed by
the books. multiplying the actual factor being
used during the period by the
predetermined rate, at the same time,
debiting work in process.
Over/under applied overhead - the difference between the actual overhead incurred
and the applied overhead.
OVER/UNDER APPLIED OVERHEAD
1. Difference between the actual | 1. Difference between actual
manufacturing overhead and the manufacturing overhead and the
applied overhead when actual is applied overhead when the applied is
more the applied. more than the actual.
The closing of the Factory Overhead Control account and the Factory Overhead
Applied account may be done at the end of the month or at the end of the year. If
the closing is to be done monthly, the following are the entries:
End of the month:
Factory Overhead Applied
Under/over-applied overhead
Factory Overhead Control x
b
RY
End of the year:
eo. Cost of Goods Sola x
3 Under/over-applied overhead _ x
If the closing is to be done yearly, the entry will be at the end of the year only.
The entry is shown on the next page 106 Cost Accounting —
End of the year:
Factory Overhead Applied x
Cost of Goods Sold x
Factory Overhead Control x
The variance is computed as follows:
Actual factory overhead XX
Less: Applied factory overhead xxx
Variance 2%
If actual is bigger than applied, the variance is called under-applied factory
‘overhead (unfavorable), and this is taken as an addition to the Cost of Goods Sold
-in the statement. If applied is bigger than actual, the variance is called over-
applied factory overhead (favorable) and this is taken as deduction from the Cost
‘of Goods Sold in the statement. Whatever method of closing the control and
applied account is used, the statement is always adjusted for the under-
applied/(over-applied) on the statement. For purposes of preparing the Cost of
Goods Sold statement, factory overhead applied is used because this is the amount
charged to the work in process account. As stated above, the Cost of Goods Sold
will be adjusted for the variance only at the end of the year. If the Cost of Goods
Sold is stated in the problem, then it must be taken as normal, prior to the
adjustment for the variance.
Work in process - controlling account used to record the flow of the elements of
cost through the factory during a given period,
WORK IN PROCESS
1, Cost of beginning inventory 1. Cost of materials, labor, and factory
2. Gost of direct materials issued 10] overhead applied to jots comel
production at the same time crediting | during the period at the same me
materials debiting finishe
3. Cost of direct labor applied to Bee
production during the period at the | 2.
same time crediting the payroll
account
4, Amount of overhead applied to
production at the same time crediting
applied overhead.
Cost of direct materials returned 10
the warehouse at the same time
debiting materials, :
t
Chapter 4 Job Order Costing 107
The work in process account is used to accumulate during the month the total cost
of materials placed in process, labor used, and factory overhead applied. The
amounts entered on the cost sheet should equal the amounts debited to the work in
process account during the month. As jobs are completed, the cost sheets for the
corresponding jobs are totaled and the amount is now transferred to the finished
goods account. The journal entry to record the cost of the jobs completed is:
Finished goods ax
Work in process xx
When the finished goods are delivered to customers, the sales and the cost of
goods sold are recorded as follows:
Accounts receivable xox
Sales xox
Cost of goods sold wou
Finished goods Xxx
Ifa job is delivered directly to a customer, the entries to record the completion of
the job and the delivery to the customer may be merged into one as follows:
Cost of goods sold soo
Work in process or
Finished goods - a controlling account used to record the flow of the cost of goods
completed and transferred to the finished goods storeroom during the period.
DS
1. Cost of finished goods sold during the
period at same time debiting cost of
goods sold.
1._ Cost of inventory at the beginning
2. Factory cost of job order completed
at the same time crediting work in
process.
3. Cost of goods retumed by the
"customer at the same time crediting
cost of goods sold. Pe sale tocustomers..
Cost of finished goods disposed | 1, Cost of finished goods
through sale to customers at the same| customers at the sane time
time crediting finished goods. the finished goods acco
. Adjustment for under-applied factory | 2,
overhead
Adjustment of over: applied fat
overhead.
+ Balance of the account at the end
the period at the same time debit
income summary.
ILLUSTRATIVE PROBLEM:
The Northem Consolidated’Company has the following balances as of January 's
2022.
Materials P Ao
Work in process Aeon
Finished goods cea
Accrued factory payroll ne
Details of the three inventories are:
Finished goods
Commodity x ~2,000 units at P 3,00 76,000
Work in process - Job No. 101 5
| Materials:
A200 unitsat P5.00 p99
B-175 units at P-4.00 Ny
Direct labor: 700 P 1,700
290 hours at P 5.00
Factory overhead - applied at 1,450
100% of direct labor cost
1,450 4,600 Chapter 4 Job Order Costing 109
Materials.
Material A - 600 units at P 5.00 P_ 3,000
Material B - 350 units at P 4.00 1,400
Indirect materials 500
4,900
The transactions for the month of January, 2022 are as follows:
1. Purchases for the month of January - Material A - 600 units at P5.50; Material
B - 800 units at P5.00; Indirect materials - P700.
2. Materials requisitioned and issued on a FIFO basis amounted to P 7,000.
_ Material A, 200 units (charged to Job 101); Material A, 600 units and Material
B, 225 units (charged to Job 102; Material B, 425 units (charged to Job 103).
Indirect materials amounted to P 1,000.
3. Material B retumed to vendors, 70 units at P 5.00
~ Payroll during January amounted to P 10,300, of which P 2,000 is for Job 101;
P 4,000 is for Job 102; P 2,000 for Job 103. and P 2,300 is indirect labor.
Deductions are as follows:
SSS Premiums a Pa A412
Medicare Contributions - 225
—— Withhotding taxes - 1,050
Factory overhead.is applied on the basis of 100% of direct labor cost.
Jab 102 for 5,000 units of Commodity Y,
ring January on FIFO basis - 4,000 units of Comm
ind 4,000 units Soy Yat P 4.00 per unit,
tee 5S Pp
LexpensesaP, 1300 3.
4
2
Materials if
Accounts Payable
Materials purchased computed as follows:
Mat. A - 600 units at P 5.50 ~
3,300
Mat. B - 800 units at P 5,00 - 4,000
Indirect materials 700
8.000
Work in process
Factory Overhead Control 1,000
Materials
Materials issued to production,
Job 101
Mat. A - 200 units at P 5.00 - 1,000
Job 102
Mat. A - 400 units at P5090 ~ 2,000
200 units at P 5.59 - 1,100
Mat. B - 225 at P 4.00
200 4,000
Job 103
Mat. B-125 units at P4.00- 599
300 units at P 5.00 - 1.509 2,000
Accounts Payable ee 350
Materials 350
Materials returned to vendors.
Payroll
SSS Premium Payable 1300, 422
Medicare Contributions Payable 225
Withholding Taxes Payable 1,050
Accrued Factory Payroll 8,663
Payroll for the month, ‘ Chapter 4 Job Order Costing 111
Work in process 8.000
; Factory overhead Control 2,300
Payroll _ 10,300
Classification of payroll.
5. Workin Process 8,000
Factory Overhead Applied 8.000
t Factory overhead applied to production.
6, Finished goods 21.000
Work in Process 21,600
Cost of jobs completed computed as follows:
; Job 101 Job 102
, Materials- P 2,700 P 4,000
Labor - 3,450 4,000
Overhead- 3,450 __4,000
P...9,600 P. 12,000
7. Accounts Receivable 40,000
Sales 40,000
Sales computed as follows:
X - 4,000 at P 6,00 - P 24,000
or Y-4,000 at P 4,00- 16,000
Cost of goods sold 22,000
Finished Goods 22,000
Cost of units sold for the month: :
X - 2,000 at P 3.00 - P 6,000
2,000 at P 3.20- 6,400
YY - 4,000 at P2.40- 9,600 112
10. Accounts Payable 9,500
Acerued Factory Payroll 8,500
Cash
Materials Work in P
Vi -4,900 | 2) 8,000 V1 4,600 | 6)
1) 8,000 | 3) 350 2) 7,000
1Bt 4,550 eS) a
5) 8,000 | 1/31 6,00
Finished Goods Cost of Goods Sold
V1 6,000 | 7) 22,000 7) 22,000
8) 21,600 131 5,600,
Factory OH Control Factory OH Applied.
2) 1,000 5) 8,000
4) 2,300
9) 4,800
STOCKCARDS
2 MATERIAL A
Received eae a
5 600 at P5.00__P
G
1)600 at PS.50 P 3,000 600 at P5.00 aa
2) 600 at P50. 3p99 Poo 4
200 et P5507 100: | doo at PS50 ae
MATERIA‘
Received ar ite :
[1800 at P5.00 4,000 | - ———_____| 350 ar P4,00
aa 350 at P4.00
2580 a PHD apg 80 ae PS.00
300 at PS, ‘
3(70) at P5.00 350) SAPS.00 1,500 _| 500 at P5.00
ee F430 at P00 Chapter 4 Job Order Costing
INDIRECT MATERIALS,
113
Received Issued Balance
500,
700. 1,200
1,000 200
COMMODITY X
Received Issued Balance
© 2,000 at P3.00_P 6,000
6)3,000 at P3.20 9,600 2,000 at P3.00 6,000
3,000 at P320__9,600
72,000 at'P3.00 6,000.
2,000 at P3.20 6,400 1,000 at P3.20__ 3,200
COMMODITY Y
Received Issued Balance:
6)5,000 atP2.40_12.000 5,000 at P2.40__12,000
7)4,000 at P2.40__ 9,600 j
COST SHEETS
e Job 101
Materials. Labor Overhead
Ww W 1,450 Vi 1,450
A-200 at P5.00 P 1,000
B-175 at P4.00
2,000
2) }
A-200 at P5.00__1,000
2, Job 102
Labor
2) al a 00a
A-400 at PS.00 2,000
200 at P5.50 1,100
-|B-225 at P4.00___900
‘cans 7,000 4,000
Job 103
Materials Labor Overhead
vy 4) 2,000 | 5)
B-125 at P4.00 500
-300 at P5.00 1,500
NORTHERN CONSOLIDATED COMPANY
Cost of Goods Sold Statement
Direct materials:
Materials, January 1
Purchases. P 8,000
Less: Purchase returns 350
Total available for use ee
Less: Materials, January 314.550
Indirect Materials 1,000
Direct labor paar
Factory overhead
Total manufacturing cost
Add: Work in process, January 1
Cost of goods pist into process
Less: Work in process, January 3]
Cost of goods manufactured
Add: Finished goods, January |
Total goods available for sale
Less: Finished goods, January 3]
Cost of goods sold - normal
Add: Under-epplied factory overhead
Cost of goods sold - actual
for the month ended January 31, 2022
P 4,900
7,650
12,550
5,550
piece
a
3
te
tL Chapter 4 Job Order Costing 115
‘The under applied factory overhead is computed as follows:
Actual factory overhead P 8,100
Less: Applied factory overhead
Under-applied factory overhead
}
|
|
|
'
The closing of the Factory Overhead Control account and the Factory Overhead
Applied account maybe done on a monthly basis or an annual basis. Whatever
method is used, the statement is always adjusted for the under-applied
(unfavorable) or the over-applied (favorable) factory overhead. Under-applied
factory overhead is considered unfavorable because the effect is an increase in the
cost of goods sold, thereby decreasing the gross profit. On the other hand, the
‘over-applied overhead is considered favorable because the effect is a decrease of
the cost of goods sold thereby increasing the gross profit.
If the closing is done on a monthly basis a special account, Under-and Over-
applied Factory Overhead, will accumulate the differences period-to-period. At
the end of the calendar or fiscal year, the balance of the under-and over-applied
account will be closed to Cost of Goods Sold or allocated on a pro-rata basis to
Work in Process, Finished Goods and Cost of Goods Sold. The remaining balance
should be pro-rated if the amount of the balance would materially distort net
income if it were charged entirely to Cost of Goods Sold. If a small balance
remains in the Under-and Over-applied Factory Overhead at year-end, it may be
closed directly to Cost of Goods sold because it will not materially affect net
income.
TREATMENTS FOR DEFECTS AND SPOILAGES IN JOB ORDER
COSTING
Defective units are those that can be corrected by reprocessing. On the other hand,
spoiled goods are partially or fully completed units that are not correctable either
because it is not possible to correct them or because it is not economical to correct
them.
Defective units are deemed to be reworked and thus would entait additional
sprocessing costs, while spoiled units are either simply disposed; or inventoried at
jominal value; or sold immediately as seconds. Either which way spoiled units are
ndled, unrecovered costs occur. 116
The main issue is how to charge (1) the additional costs incurred in defective units
and (2) the unrecovered costs resulting from spoilages. If the imperfection occurs
because of actions taken by the customer or because of the order’s exacting
specifications, the losses are charged to the specific job (debited to Work in |
Process) and shared by all manufactured units under the job order.. If defects and
spoilages occur from intemal failure, such as an error by a worker or defective
materials or equipment, the losses are charged as actual overhead. They are
debited to Factory Overhead Control, and shared by all manufactured units during
the period.
Illustrative Case
Microtech Company received an order for 50 automatic mixing machines. The
material cost per unit is P240, labor P582, and factory overhead is charged at 100%
of direct labor cost. During production, 10 units were found to be defective and
required the following total additional costs: materials, P291 and labor, P375-
On final inspection, 4 units were classifi
1,200 each, the proceeds being credited
accept the remaining good machines, alth
Required:
1. Total'and unit costs of the completed units
2. Journal entries to record the
assumptions:
a. The customer is at fault for t
b. The company is liable due t
ied as spoiled and,sold as seconds for
to the order. The customer has agreed to
lough fewer than the number ordered.
Biven transactions under the following
he production imperfections
© internal failure in operation.
CUSTOMER'S FAULT
INTERNAL FAILURE
WIP 70,200 WIP. 70,200
Materials 12,000 Materials «42,000
Payroll. 29,100 Payroll 29,100
FO applied 29,100 FO applied 29,000
Note: The agreed unit costs P1,404, ie, P70.200/50 units
wIP L041 Foc
Materials 291 Materials ae 291
Payroll 385 Payroll 385
FO appiied beige FO applied 385
Atthis point the unit costis PI,424.82 jp, applies
(P70,200 +P1,041)/ 50, units ae eee sas
(P70,200 / 50 units) Chapter 4 Job Order Costing 17
Cash 4,800 Cash 4,800
‘WIP 4,800 FOC 816
WIP. 5,616
The unrecovered cost of P816 (P1,404— The P816 loss is treated as an
1,200) x 4 units remains in WIP actual factory overhead item.
[FG 66,441 FG 64,584
wip - 66,441 wip 64,584
Unit cost is P1,444.37 (P66,441/46 units) Unit cost is P1,404 (P64,584/46)
‘The increase in unit cost to the customer when it is the party liable is because of
the reworking cost of P1,041 and the spoilage loss of P816, as follows:
. Customer is at fault 1,444.37
# Company held liable 1,404.00
Increase in unit cost (P1,857/46) P 4037
SCRAPS AND WASTES MATERIALS
Be _ SCRAPS are leftover from the production process that cannot be put back to
‘production for the same purpose, but may be usable for a different purpose or
Scrap not traceable to a specific job
XXX Scrap materials Xxx
Miscellaneous income Xxx
are left over from the production process that has no further use or
y require cost for their disposal,
Disposal Cost Allocated to Specific lob
Work-in-Process —Job xxx
Accounts payable xx ‘qs
JUESTIONS
1. When is job-order costing appropriate, and how are costs accumulated in a job
! order cost’system? af
} 2. When is process costing appropriate, and how are costs accumulated in a
process cost system?
I 3. How is cost accounting related to financial accounting?
4. Distinguish between cost of goods sold and cost of goods manufactured.
5. What is a job cost sheet and why is it useful?
6. What are the primary cost-accumulation accounts used in a job-order costing
system?
7. What document is used to support the transfer of direct materials from
materials inventory to work in process?
8. In what way does the accounting treatment of direct materials and direct labor
costs differ from that of factory overhead?
9. What documents constitute the suy
. in
ts con ipporting subsidi for work
process when using a job-order costi ge
ing system?
10. What are the two entries typically required at the time finished units are sol4?
11. What distinguishes a product as being spoiled or defective?
12. In what instance would there be no eff : ste. variods
Fe . fect vite
imperfections in producing an order for acustomen nt “ot OP Chapter 4 Job Order Costing 119
TRUE OR FALSE
2.
19
18.
Product costs are historical figures and therefore are of little use to
the manager.
A company producing furniture would probably. use a job-order
cost system.
Both job-order and process costing systems utilize averaging
concepts in computing unit costs.
Most factory overhead costs are direct costs and therefore can be
easily identified with specific jobs.
The predetermined overhead rate is computed using estimates of
cost and activity.
The cost of indirect materials used in production is added to the
MBG. OH account rather than added directly to Work in Process.
Actual manufacturing overhead costs are charged directly to the
Work in Process account as the costs are incurred.
Selling and administrative expenses should be added to the
Manufacturing Overhead Account.
If more overhead is applied to Work in Process than is actually
incurred, then overhead will be overapplied.
All of the raw materials purchased during a period are included in
the cost of goods manufactured figure.
Any balance in the Work in Process account at the end of a period
should be closed to Cost of Goods Sold.
Ifa job is not completed at year end, then no overhead cost should
be applied to that job.
Once production is completed, the job cost sheet can be discarded.
In a job order cost system, depreciation of factory equipment
should be charged directly to the Work in Process account.
|. The cost sheet is the support document for materials.
A job order cost system identifies costs with a particular job rather
than a set time period.
Manufacturing costs are generally incurred in one period and
recorded in a subsequent period.
‘A job order cost system is most appropriate when a large volume of
uniform products are produced.
Job order cost sheets constitute the subsidiary ledger of the.control
account Work in Process inventory...
When raw materials are purchased, the Work in Process Inventory
account is debited. ae
1. Under the job-cost system, purchases of direct materials are debited to:
a. Purchases i
b. Work in Process Control
c, Factory Overhead Control ‘
d._None of the above
2. Under the job-cost system, issues of direct materials are debited to:
a. Factory overhead Control
b. Work in Process Control
. Materials Control
d._ None of the above
3. In job-order costing, what journal entry should be made for the return to the
stockroom of direct materials previously. issued to production for use 07 @
particular job?
a. debit Materials and credit Factory Overhead
b. debit Materials and credit Work in Process
. debit Purchase Returns and credit Work in Process
d_ debit Work in Process and credit Materials
4. Under a job-order costing system, the peso amount of the entry involved in the
transfer of inventory from work in process'to finished goods is the Sum ©
costs charged to all jobs:
a. started in process during the period
b. in process during the period
¢. completed and sold during the period
d. completed during the period
5. In.ajob-order costing system,
a. Payroll liability
b. Work in Process Control
c. Finished Goods Control}
d, Factory Overhead Control
indirect labor used should be debited to: Chapter 4 Job Order Costing 121
6. Which of the following is the basic document that is used to accumulate the
cost of each order in job order costing
a, Invoice
b. Purchase order
c. Requisition sheet
d. Job Cost sheet
7. What is the best cost accumulation procedure to use when many batches, each
differing as to product specification, are produce(!?
a. Job order
b. Process
c. Actual’
d. Standard
8, The most common treatment of under-or overapplied overhead is to close it to:
Work in process
Retained Earnings
Cost of Goods sold
Finished goods
oP
ile
"9, It’s two o'clock in the morning and yau'ye been studying job-order costing for
the past three hours. You drift olf to sleep and in your first dream you visit
__ JOB-ORDER COSTING LAND, You are a direct labor peso and are traveling
through a giant ledger. By the time you finish your journey, which accounts
will you travel through and in what order?
a, Work in process. Cost of goods manufactured, Finished goods, and Cost of
goods sold.
Direct labor, Work in process. Finished goods, and Cost of goods sold
“¢. Work in process, Finished goods, and Cost of goods sold. =
Manufacturing overhead, Work in process, Cost of goods manufactured,
and Finished goods.
Direct labor, Work in. process, Finished goods, Cost of goods
nufactured, and Cost of goods sold. set 122
10.WI
a.
b.
c
d
Toy manufacturing
Shipbuilding
Crud oil refining
Candy, manufacturing
of the following production operations would be most likely to em
job order system of cost accounting? :
oye
- Someone told Marco de Santos, president of D’Santos Company, that under-or
‘over-applied manufacturing overhead can be allocated to three accounts. What
are those three accounts:
a. Raw materials, Manufacturing overhead and Direct labor.
b. Raw materials, Finished goods, and Cost of goods sold.
©. Cost of goods sold, Work in process, and Finished goods.
d. Cost of goods sold, Work in process, and Raw materials.
111. The predetermined OH rate is co:
the overhead base by budgeted o
. Which of the following statements are False?
Ls
A manufacturing company can use direct labor hours as. an overhead base
in one department and machine hours as an overhead base in another.
11. A debit balance in the work in process account indicates that not all goods
completed during the period were sold.
a. lonly
b. 11 only
c. land 11 only
d. 1and 111 only
. What accounts would be debited
purchased on account?
esse
Debited
Work in process
Direct materials
Materials
Work in process
mputed by dividing estimated units in
estimated manufacturing overhead cos
and credited when the direct materials ©
Credited
Di
rect materials
Work in process
Accounts payable
Accounts payable Chapter 4 Job Order Costing 123
14, What accounts would be debited and credited when the wages for indirect
laborers are recorded?
Debited
Credited
_ Factory overhead Wages payable
.. . Factory overhead Payroll
Payroll ‘Accrued payroll
Work in process Payroll
5. Which of the following statements pertaining to job-order costing are TRUE?
1. The issuance of indirect materials from the storeroom is recorded on job-
cost sheets.
11. Overapplied factory overhead can be properly disposed off with a debit to
cost of goods sold and a credit to factory overhead.
11).Both an overstated forecast of overhead and an understated forecast of
units of the overhead base can cause overhead to be overapplied.”
a. lonly
b. Lonly
c. Illonly
d. 11and 111 only
16. A material requisition form normally does not contain which of the
following?
a. Vendor’s name
b. Quantity requisitioned
-¢. Unit cost
d. Job number 124
18. Ina job order costing system, payroll taxes deductions paid b
employer for factory employees are normally accounted for as —
a. direct labor
b, factory overhead
¢. indirect labor
4. administrative cost
19. Overhead applied was P120,000, while actual overhead was P124,000
Which of the following is always true of the above? :
a. Direct labor activity was overestimated
b. Overhead was under applied by P4,000
c. Overhead was over applied by P4,000
d. The difference must be reported as a loss.
20. Which of the following is not a characteristic of job costing?
a. Each job is distinguishable from other jobs.
b. Identical units are produced on an ongoing basis.
¢. Itis not possible to compare actual costs with estimated costs.
4. Job cost data are used for setting prices and bidding prices.
21. Under a job oraer costing system, the cost of direct materials, direct
labor and factory overhead must first flow through the
a. Finished goods account
b. Cost of goods sold account
c. Work in process account
d, Cost of goods manufactured account
22, The unit cost of a product, under job orde
only
a. Atthe end of the manufacturing process
b. Upon completion of a job,
c. At the end of the month
d. At the point of time
+ costing, can be determined Chapter 4 Job Order Costing 125
23. When a job is completed and all costs have been accumulated on a job
cost sheet, the journal entry that should be made.
a. Finished Goods Inventory
Direct materials
Direct labor
Factory overhead
b. Work in Process Inventory
Direct materials
Direct labor
Factory overhead
~¢. Raw Materials Inventory
Work in Process Inventory
_ d. Finished Goods Inventory
¢ Work in Process Inventory
24. Cost of raw materials are debited to Raw Materials Inventory when
___ a. the materials are ordered
__, the materials are received
¢. materials are put into production
the bill for the materials are paid
inder an effective system of internal control, the authorization for
issuing materials is made
b. ona pre-numbered materials requi in slip
c. by the accounting department
by anyone on the ,
jer is at fault, cost of reprocessing defective units are debited to
whos) 014 paises @ i
‘the, custom
is accoui
ictory overhead applied it
126 : ganas) 1abCO
Problem 1 fear
The Riverside Company had the following inventories on Aug. | of the
year,
Finished goods P 62,500
Work in process 46,250
Materials 55,000
The work in process account controls two jobs
Job401 Job 402_
Materials P7500 P 14,000
Labor 6,250 7,500,
Factory overhead 5.000 6,000
PI8.250 27,500
The following information pertains to August operations:
1) Materials purchased on account, P70,000,
2) Materials issued for production, P62,500. Of this amount, P7.500 was for
indirect materials; the difference was distributed: P13,750 to Job 401; PITS
to Job 402; and P23,750 to Job 403.
3) Materials retumed to the warehouse from the factory, P2,000, of which P750
was for indirect materials, the balance from Job 403
4) Materials retumed to vendors, P2,500.
5) Payroll after deducting P7,562.50 for withholdin; 4,000 for SSS
Premiums, P937.50 for Medicare, and P3,000 for Pag big, wes P8000,
payroll due the employees was paid during the monte
The payroll was distributed as follows: P26,000 to Job 401; 31,250 to Job
402, P26,250 to Job 403 and the balance represents indirect labor
7) The share of the employer for payroll was recorded - P5000 for SSS.
Premiums, P937:50 for Medicare Conuibutions, and P3,000 for Pag-ibiE
Fi Y ie
8) Factory overhead, other than any previously mentioned 37,500.
Neen , amounted to
Included in this figure were P7,500 for Sepreciation of factory building 3”
equipment, And P 2,47 for Cxpired insurance on the fan one tie eats
overhead was unpaid at the end of August. My
9) Factory ovethead wes applied to produetion atthe rate of 80% of direct 1D
cost.
10) Jobs 401 and 402 were comp!
warehouse
6)
leted and transferred to the finished goods Chapter 4 Job Order Costing 127
11) Job 401 was shipped and billed ata gross profit of 40% of the cost
12) Cash collections from accounts receivable during August were P87,500..
Requirements for Problem |
1. Journal entries to record the above transactions.
2. job order cost sheets,
3. Cost of goods sold statement.
Problem 2
‘On December 31, 2022, after closing, the ledgers of Solidarity Company contained
these accounts and balances:
Cash P.-94,000
Accounts Receivable 100,000
_ Finished Goods 65,000
Work in Process 15,000
Materials 44,000
Machinery 70,600
Accounts Payable 118,750
Common Stock 200,000
Retained Earnings 69,850
Details of the three inventories’are:
_ Finished goods inventory:
Item A'- 2,000 units at P 12.50 P 25,000
Ttem B - 4,000 units at P 10.00 40,000
oe Total B_ 65,000
Work in process inventory: Job 101 Job 102
Direct material:
1,000 units at P5.00 P. 5,000
400 units at P 3.00 P 1,200
rect labor:
1,000 hours at P4.00 4,000
; 400 hours at P 5.00 2,000
Factory overhead:
Applied at P 2.00/hour _ 2,000 » 800
Total ~ BL,000 24,000
erials inventory:
"Material X - 4,000 units at P 5.00 P 20,000
Material Y - 8,000 units at P 3. 24.000 128
During January, 2022, these transactions were completed: ib dhe
a) Purchases on account: Material X - 20,000 units at P5.20; Material Y - 24,000
Units at P 3,75; indirect materials - P35,040. : ’
) Payroll totaling P220,000 was paid. Of the total payroll, P40,000 was for
marketing and administrative salaries. Payroll deductions consisted of P31,000
ithholding taxes, P7,000 for SSS’ premiums, P 440 for Medicare
contributions, P 6,600 for Pag-ibig Funds,
Payroll is to be distributed as follows: Job 101 - 10,000 direct labor hours at P
4.00, Job 102 = 16,000 direct labor hours at P5.00; Job 103 - 12,000 direct
labor hours at P3.00; indirect labor - P24,000; marketing and administrative
salaries - P40,000. Employer’s payroll taxes are: SSS Premiums - 5%
Medicare contributions - 0.2%; and Pag-ibig Funds - 3%. é
d) Materials were issued on a FIFO basis as follows: Material X ~ 20,000 units
(charged to Job 101); Material Y - 24,000 units (charged to Job 102); Material
X - 2,000 units and Materials Y - 5,000 units (charged to Job 103); (Note!
Transactions are to be taken in consecutive order). Indirect materials
amounted to P15,040.
Factory overhead was applied to Jobs 101, 102, and 103 based on a rate of
P2.25 per direct labor hour.
Jobs 101 and 102 were com;
P270,000, respectively.
g) After allowing a 5% cash discount, a net amount of P494,000 was collected 0”
accounts receivable. i
Marketing and administrative expenses (other than salaries) paid during the
month amounted to P30,000. Miscellaneous factory overhead of P2 1,600 "2S
paid. Depreciation on machinery was p4
i) Payments on account, other than
Jj) The over or under-applied facto
°)
¢)
pleted and sold on account for P240,000 and
h
Payroll paid. amounted to P170,000.
NY Overhead is to be closed.
Required:
|. Open T-accounts and record balances from
2. Journalize the January transactions
3. Post January transactions to
z the general ledg idiary ledgers f°
materials and work in process, = ledger, and subsidiary led3'
Prepare a statement of cost Of goods sold
the January | trial balance.
4, a
Chapter 4 Job Order Costing 129
Befleview Company uses a job order cost system. On May 1, the company, has a
‘palance in Work in Process Inventory of P 4,375 and two jobs in process, Job No.
101 P2,500 and Job 102 P1,875. During May, a summary of source documents
reveals the following.
| Problem 3
Materials
job Number Requisition Stips
101 aa 125)
102 4,375
103 5,750 P 13,250 1,250 P 14,625
General use 1,000 1,500
Total Pa 142250
Belleview manufacturing overhead to jobs at an overhead rate of 80% of
direct labor cost. Job No. 101 is completed during the month.
Instructions:
1. Prepare summary journal entries to record
a) The requisition slips
b) The time tickets
c) The completion of Job No 101
Problem 4
Crankton Company begins operations on April 1, 2022. Information from job cost
sheets shows the following
Manufacturing Costs Assigned
Be Job Number Ap ‘May June Month Completed
101 P 6,500 P 6,750 May
102 5,875 4,750 P 2,500 June.
103. 1,500 April
104 2 7,250 5,250. June
fe 1105 6,500 4,750 Not yet complete
Each job was sold for 25% above its cost in the month following completion
Instructions:
1, Compute for the balance of Work in Process Inventory at the end of each
month. ; s
2. Compute for the balance of the Finished Goods Inyentory at the end of.
_ each month
3. Compute for the gross profit for May, June and uly 130 Cost Accour
Problem 5,
Gigantic Corporation ot
month of August, 2022::
Jobs completed and sold
Job 110 Job 220 Job 330
Direct materials cost P 18,750 P 31,250 P 25,000
Direct labor cost 50,000 62,500 37,500
Factory overhead 31,250 37,500 25,000
Units manufactured 6,250 5,000 12,500
GP rate (based on sales) 20% 25% 30%
Required:
1, Prepare in summary form, the journal entries that would have been made
during the month to record the above,
2. Prepare the schedules showing the gross Profit or loss for August.
a. For the business as a whole.
b. For each job completed and sold.
Problem 6
The following account balances were taken from the general ledger accounts of the
Titanic Company during 2022:
January 1 December 31.
Materials P 75,000 P 100,000
Work in Process 106,250 137,500
Finished Goods 150,000. 112,500
Factory Overhead Control : 412,500
Applied Factory Overhead
{applied at a rate of 80% of direct labor is 400,000
Cost of Goods Sold o 1,062,500
Requirements: , i ane
1. Journal entries to record the transact int
accounts for the year.2022, re ere carer
the year 2022,
2. Cost of Goods Sold Statement fo ay
3. Overhead Control account and Applied Fa!
Entry to close the Factor
Overhead to Cost of Goods Sold, Chapter 4 Job Order Costing 131
Problem 7
The following inventory data relate to Forester Company .for 2022
5 Inventories
ny Beginning Ending
Finished goods P112,500 PP 137,500
Work in process 100,000 87,500
Direct materials 118,750 112,500
Revenues and costs for the period
Sales P 1,125,000
Cost of goods available for sale 968.750
Total manufacturing costs 843,750
Factory overhead 218,750
Direct materials used 256,250
Required: Compute the following for the year:
1. Direct materials purchased
2.. Direct labor costs incurred
3. Cost of goods sold
4. Gross profit
Problem 8
‘The following data relate to Cornerstone Company for the month of July, 2022:
JobNo.101 JobNo.102_ Job No. 103
In process, July 1
Materials P 50,000 P 37,500 is
Labor 75,000 50,000
