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Job Order Costing

Job order costing is a costing system that accumulates costs and assigns them to specific jobs. It offers a detailed analysis of material, labor, and overhead costs. Costs are allocated using predetermined overhead rates. Job costing facilitates cost estimation and profitability analysis for jobs. It identifies defects to enable corrective actions. Costs flow through accounts from direct materials and labor to work in process, finished goods, and cost of goods sold. Documents like job cost sheets, material requisition forms, and time tickets are used to track job costs.

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Chandan Dev
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2K views23 pages

Job Order Costing

Job order costing is a costing system that accumulates costs and assigns them to specific jobs. It offers a detailed analysis of material, labor, and overhead costs. Costs are allocated using predetermined overhead rates. Job costing facilitates cost estimation and profitability analysis for jobs. It identifies defects to enable corrective actions. Costs flow through accounts from direct materials and labor to work in process, finished goods, and cost of goods sold. Documents like job cost sheets, material requisition forms, and time tickets are used to track job costs.

Uploaded by

Chandan Dev
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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JOB ORDER COSTING

PRESENTED BY: ARPANA KUMARI(20013) DIMPLE KUMARI(20015) CHANDAN DEV(20014) KARTHIK B.(20016)

definition
A costing System in which cost are collected and assigned to units of production for each individual job. Job costing is a product costing system that accumulates costs and assigns them to a specific job.

Advantages of job order costing


Offers a detailed analysis of the costs of materials, labor cost and overheads by functions and nature. Makes it possible to appraise the profitability of a job. Facilitates the estimation of the cost of a similar job.

cont
Allocates overheads on the basis of a predetermined rate. Costing makes easy to identify spoilage and defects to take corrective actions. Evaluates efficiency of different types of jobs with cost records by using statistical techniques.

Disadvantages of job order costing


Needs a great deal of clerical work. Ascertainment of overhead rate needs allocation and apportionment of the overheads from service department to production department . Strict control of costs associated with a job is difficult.

Job order costing system


Job order costing system is used in situations where many different products are produced each period. In a job order costing system, costs are traced to the jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit. Job Order Costing System is also extensively used in service industries.

Problems in job order costing system


The record keeping and cost assignment problems are more complex in a job order costing system when a company sells many different products and services than when it has only a single product or service. Since the products are different, the costs are typically different. Consequently, cost records must be maintained for each distinct product or job.

The same basic purpose exists in both systems. Job-Order Costing Vs. Process Costing - Similarities

Both systems maintain and use the same manufacturing accounts.

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The flow of costs through the accounts is basically the same.

The same basic purpose exists in both systems. Job-Order Costing Vs. Process Costing - Similarities

To assign direct material, direct labor and manufacturing overhead to products.

2
To provide a mechanism for computing unit cost.

Differences arise from two factors . . .


These units are indistinguishable from one another.

The flow of units in a process costing system is more or less continuous.

Job-Order Costing Vs. Process Costing - Differences

Differences

JOB ORDER COST FLOWS


The cost flow parallels the physical flow of the materials as they are converted into finished goods.
Manufacturing costs are assigned to Work in Process.

Cost of completed jobs is transferred to Finished Goods Inventory.


When units are sold, the cost is transferred to Cost of Goods Sold.

JOB ORDER COST FLOWS


Overview

Two Major Steps in Flows of Costs


Accumulate the manufacturing costs incurred Raw materials Factory Labor Manufacturing Overhead Assign the accumulated costs to the work done

ACCUMULATING MANUFACTURING COSTS

flow of cost
Measuring Direct Materials Cost in Job Order Costing System Measuring Direct Labor Cost in Job Order Costing System

Application of Manufacturing Overhead

Application of Factory Overhead


To apply overhead cost to each job, normal costing requires a per product rate, which is often called a predetermined rate (since it is calculated at the beginning of the accounting period) The predetermined factory overhead rate is an estimated factory overhead rate used to apply factory overhead cost to a specific job
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ASSIGNING MANUFACTURING COSTS TO WORK IN PROCESS


Track of job cost through source documents
Job Cost Sheet: It is subsidiary to the work-in process account and is primary document for accumulating all costs related to a particular job.

Material Requisition Form: The cost of direct material is assigned to any job by the use of a source document known as material requisition form.

Job Time Tickets : The cost of direct labor are assigned to individual jobs through a source document known as job time tickets.

Flow of Documents in a Job-Order Costing System A sales order is prepared as a basis for issuing a . . . Production Order

Sales Order A production order initiates work on a job, whereby costs are charged through:

Materials Requisition Form

Direct Labor Time Ticket

Predetermined Overhead Rates

Job Cost Sheet

Direct Materials Direct Labor Mfg. Overhead Work-inProcess Finished Goods Cost-of Goods Sold

Direct Materials Direct Labor Mfg. Overhead Work-inProcess Finished Goods Cost-of Goods Sold

Job Costing in Service Industries


Job costing in service industries uses recording procedures and accounts similar to those in manufacturing except for direct materials involved. In service industries, the primary focus is on direct labor. The overhead costs are usually applied to jobs based on direct labor-hours or dollars.

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Valuing Inventory Decision Making

Pricing Products

Planning & Control

Financial Reporting

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