CHAPTER 4: DIRECT

MATERIALS

JOB ORDER DIRECT

LABOR

COSTING FACTORY
OVERHEAD
Presented by : Group 3
 CHAPTER 4: JOB ORDER
COSTING

LEARNING OBJECTIVES
• 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 report, and a materials
requisition.
• Distinguish between the periodic and perceptual cost
accumulation systems used to account for materials issued
to production and for ending materials inventory.
• Prepare a job order cost sheet.
 CHAPTER 4: JOB ORDER
COSTING

WHAT IS JOB ORDER COST?

The job order cost procedure keeps the costs of various jobs or contracts
separate during their 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 engineers, 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
and costed.
For example: In the Shoe Manufacturing Industry, a contract is divided
into lots, each lot being from 100 to 250 pairs of one size and style of shoe.
Thus, the costs are then accumulated for each lot.
 CHAPTER 4: JOB ORDER
COSTING

In job order costing, each job is an accounting unit to which materials, labor,
and factory overhead costs are assigned by means of job order numbers. The
cost of each order produced for a given customer or the cost of each lot to be
placed in stock is recorded on a summary sheet called a job order cost sheet,
or merely a cost sheet.

WHAT IS JOB ORDER COST SHEET/ COST

SHEET?
A cost sheet in a job order costing system is designed to record the
total manufacturing costs of a specific job. This matter sheet is
designed to collect the costs of direct materials, direct labor, and
factory overhead applicable to a specific job.
 CHAPTER 4: JOB ORDER
COSTING

Example illustration of Job Cost Sheet

 CHAPTER 4: JOB ORDER
COSTING

Other example illustration of Job Cost Sheet

 CHAPTER 4: JOB ORDER
COSTING
APPLICATION: LET’S TRY
IT!
Transactions:
Jayden Textiles is a large garment factory based in the Philippines. The company
receives orders and production is undertaken according to customer
requirements. For costing purposes, the company's accounts department uses a
job order costing system.

On January 29, 2025, the company received customized order of 100 t-shirts from
Isip Garments.
The company's operations department assigned Job number 303 to this order.
The following transactions were recorded during its completion:
• Total materials used 100 units at P90.00
• Direct Labor amounted to 24000, of which the rate is 200 per hour.
• Factory Overhead is applied on the basis of 50% of direct labor cost.
Requirements:
On February 5, both jobs were completed and transferred to the storeroom.
• Prepare a Job Cost Sheet using the format shown.
 CHAPTER 4: JOB ORDER
COSTING

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 Work in
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.
c. A separate stockcard is prepared for each type of material on
hand.
 CHAPTER 4: JOB ORDER
COSTING

MAJOR SOURCE DOCUMENTS FOR JOB ORDER COSTING

3. FINISHED GOODS
STOCKCARD
a. These records are the perpetual book inventory of costs and
quantities of completed goods held for sale.
b. The file of finished goods stock cards for unsold goods is the
subsidiary ledger of Finished Goods Control.

4. FACTORY OVERHEAD CONTROL COST

RECORD
a. These records accumulate detailed manufacturing overhead costs
by department.
b. The file of these records for the accounting period is the subsidiary
ledger for Factory Overhead Control.

5. MATERIALS REQUISITION, TIME TICKET AND

CLOCK CARD
a. As the source documents for charging costs to jobs and
departments.
b. To aid in fixing responsibility for control and usage of materials
and labor.
 CHAPTER 4: JOB ORDER
COSTING

ACCOUNTING PROCEDURES FOR MATERIALS

In manufacturing enterprises, the common practice is to record all

materials and supplies in one control account. Materials or Stores
Procedures that affect the materials account involve the:

1. Purchase of materials and supplies.

2.Issuance of materials and supplies.
a. Direct materials
b. Indirect materials and supplies
 CHAPTER 4: JOB ORDER
COSTING

Recording the Purchase of Materials

The account debited when materials are purchased is Materials or Stores

(instead of Purchases for periodic) and the account credited is Accounts
Payable or Vouchers Payable. As materials are purchased the amount is
posted on the Material control account and at the same time the
purchase is also entered on an individual materials ledger card/stock
card (a separate card is used for each material item) showing quantity
received, unit cost, and total amount.
 CHAPTER 4: JOB ORDER
COSTING

The entry to record the purchase of materials is:

Materials xxx
Accounts Payable xxx

An entry is made on the stock card under the Received section..

The entry to record the return of materials to vendor is:

Accounts Payable xxx

Materials xxx

An entry is made on the stock card under the Received section enclosed in
parenthesis to indicate reduction in quantity.
 CHAPTER 4: JOB ORDER
COSTING

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..
 CHAPTER 4: JOB ORDER
COSTING

The entry to record the issuance of materials is:

Work in process xxx

Materials xxx

An entry is made on the stock card under the Issued section and also on
the cost sheet - Materials.

The entry to record the issuance indirect materials is:

Factory overhead control xxx

Materials xxx

An entry is made on the stock card under the Issued section and also on
the overhead analysis sheet.
 CHAPTER 4: JOB ORDER
COSTING

Example illustration of a Material Stock Card

 CHAPTER 4: JOB ORDER
COSTING

Example illustration of a Material Requisition Slip

 CHAPTER 4: JOB ORDER
COSTING

The material control account may be summarized as follows:

MATERIALS
• Inventory beginning • Cost of direct materials issue
• Purchase of materials • Cost of indirect materials
• Freight-in (using direct issued.
Charging) • Cost of materials returned to
• Cost of excess materials suppliers
Returned from factory

The balance of the Materials account represents the Materials inventory at

the end of the period under consideration. The amount should be equal to
the total of the balances of all the material stock cards.
LET’S TAKE A
BREAK
 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.
2.Distribution and allocation of labor costs to jobs, departments, and
other cost classifications.
Clock cards/ time records are utilized in factories to track hours worked by
employees, forming the basis for calculating gross earnings for hourly wage
workers. In addition, clock cards/time tickets are prepared for each worker to
record time spent on specific jobs, which are then sorted, priced, and
summarized. To reconcile with clock card hours for accurate labor cost
allocation.
 CHAPTER 4: JOB ORDER
COSTING

Example illustration of a Job time ticket

Labor time and costs for each job are recorded regularly on job order cost
sheets, and at the end of each payroll period, employee earnings and
payment liabilities are journalized and posted to the general ledger.
 CHAPTER 4: JOB ORDER
COSTING

Other example illustration of a Job time ticket

 CHAPTER 4: JOB ORDER
COSTING

• The entry to record the payroll and the incurrence of liability is

Payroll xxxx
Withholding Tax Payable xxxx
SSS Premium Payable xxxx
Phil Health Contribution Payable xxxx
Accrued Factory Payroll xxxx
• The entry to record the distribution of liability is
Work in Process xxxx
Factory Overhead Control xxxx
Payroll
xxxxis made on the cost sheet under the labor section
An entry

• The entry to record the payment of payroll is

Accrued Factory Payroll xxxx
Cash
xxxx
 CHAPTER 4: JOB ORDER
COSTING

PAYROLL - refers to a calculation of all employee compensation, statutory

contributions, taxes, deductions, and net payments for a certain time period.
The formal document to present payroll is called a payroll register.

PAYROLL
• Total wages and salaries • Total payroll during the
earned by factory personnel payroll period at the same
during the payroll period. time debiting work in process
for direct labor and overhead
for indirect labor.
 CHAPTER 4: JOB ORDER
COSTING

Example illustration of Payroll Register

 CHAPTER 4: JOB ORDER
COSTING
FUNDAMENTALS OF
PAYROLL
STEP 1. Compute for the gross STEP 2. Compute for the
pay by getting the total of all taxable income (basis for
earnings.
Basic Pay withholding
Gross Pay tax)
xxxx xxxxx
Less: Lates and absences Less: SSS contributions
(xxxx) (xxxx)
Add: Overtime Phil Health contributions
xxxx (xxxx)
Other taxable income Pag-ibig contributions (xxxx)
STEP 3. Compute for the total STEP 4. Compute for the net
xxxx Other nontaxable income
deductions. pay using all earnings deducted
Other nontaxable income xxxx (xxxx)
by all deductions.
SSS contributions
GROSS PAY: TAXABLE INCOME:
xxxx
xxxx Gross Pay
xxxx
Phil Health contributions xxx xxxxx
Pag-ibig contirbutions xxx Less: Total deductions
WIthholding tax (xxxx)
NET PAY:
xxx
xxxxx
Other deductions xxx
 CHAPTER 4: JOB ORDER
COSTING

Example illustration of Payslip

 CHAPTER 4: JOB ORDER
COSTING

ACCRUED FACTORY PAYROLL - refers to the compensation owed to factory

employees for work performed but not yet paid.

ACCRUED FACTORY PAYROLL

• Total amount of wages and • Balancing beginning.
factory personnel at the • Total amount of wages and
time crediting accounts salaries due to factory
payable or cash. personnel at the same time
debiting payroll.
 CHAPTER 4: JOB ORDER
COSTING

APPLICATION: LET’S TRY

IT!
Transaction
1. Payroll during January 2025 amounted to P10,300 of which
2,000 is for the Job 101; P4,000 is for the Job 102; P2,000 for
the Job 103; and P2,300 is indirect labor.
Deductions are as follows:
SSS Premiums P
422
Medicare Contributions
225
Requirements:
Withholding
• Prepare taxes
a Journal Entries and T-Accounts
1,050
 CHAPTER 4: JOB ORDER
COSTING

ACCOUNTING PROCEDURES 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 as a base:
1.Units of production
2.Direct material cost
3.Direct labor hours
4.Direct labor cost
5.Machine hours
 CHAPTER 4: JOB ORDER
COSTING

MANUFACTURING OVERHEAD CONTROL - is an accounting account used to

track the actual costs of manufacturing overhead in a factory. It's used to
capture all the indirect costs associated with the production process that cannot
be directly traced to a specific product.

MANUFACTURING OVERHEAD CONTROL

• Cost of indirect materials and • Total debit footing at the end
supplies issued from the of the accounting period
warehouse at the same time when closing the books.
crediting materials.
• Cost of indirect labor at the
same time crediting payroll.
• Cost of indirect expense
purchased from outsiders.
• Cost of other indirect expense
incurred by the company.
 CHAPTER 4: JOB ORDER
COSTING

MANUFACTURING OVERHEAD APPLIED - it refers to the process of allocating

or assigning an estimated amount of manufacturing overhead to products
during the production process.

MANUFACTURING OVERHEAD APPLIED

• Total credit footings at the • Cost of overhead allocated
end of the accounting period to production and computed
upon closing of the books by multiplying the actual
factor being used during the
period by the predetermined
rate, at the same time,
debiting work in process.
 CHAPTER 4: JOB ORDER
COSTING

OVER/UNDER APPLIED OVERHEAD - in factory overhead accounting, over-

applied and under-applied overhead refers to the difference between the actual
factory overhead costs incurred and the factory overhead applied to production
based on a predetermined rate.

OVER/UNDER APPLIED OVERHEAD

• Difference between the • Difference between the
actual manufacturing actual manufacturing
overhead and the applied overhead and the applied
overhead when actual is overhead when the applied
more the applied. is more than the actual.
 CHAPTER 4: JOB ORDER
COSTING

If the closing is to be done monthly, the following are the

entries:
• End of the month:
Factory Overhead Applied xxxx
Under/over Applied Overhead xxxx
Factory Overhead Control xxxx

• End of the year:

Cost of Goods Sold xxxx
Under/over Applied Overhead xxxx

If the closing is to be done yearly, the entry will be at the end of the year
only.
• End of the year:
Factory Overhead Applied xxxx
Cost of Goods Sold xxxx
Factory Overhead Control xxxx
 CHAPTER 4: JOB ORDER
COSTING

WORK IN PROCESS - refers to the inventory of partially completed goods that

are still in the production process.

WORK IN PROCESS
• Cost of beginning inventory. • Cost of materials, labor, and
• Cost of direct materials factory overhead applied to
issued to productions at the jobs completed during the
same time crediting period at the same time
materials. debiting finished goods.
• Cost of direct labor applied to • Cost of direct materials
production during the period returned to the warehouse at
at the same time crediting the same time debiting
the payroll account. materials.
• Amount of overhead applied
to production at the sae time
crediting applied overhead.
 CHAPTER 4: JOB ORDER
COSTING

The journal entry to record the cost of the jobs completed is:

Finished Goods xxxx

Work in Process xxxx

When the finished goods are delivered to customers, the sales and the cost
of goods sold are recorded as follows:

Accounts Receivable xxxx

Sales xxxx
Cost of Goods Sold xxxx
Finished Goods xxxx

If a 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 xxxx
Work in Process xxxx
 CHAPTER 4: JOB ORDER
COSTING

FINISHED GOODS - the cost of goods in manufacturing includes items such as

indirect labor, factory supplies, depreciation of factory equipment, and utilities

FINISHED GOODS
• Cost of inventory at the • Cost of finished goods sold
beginning. during the period at the same
• Factory cost of job order time debiting cost of goods
completed at the same time sold.
crediting work in process.
• Cost of goods returned by
the customer at the same
time crediting cost of goods
sold.
 CHAPTER 4: JOB ORDER
COSTING

COST OF GOODS SOLD - refers to the total cost of manufacturing products

that have been completed and sold during a specific period

COST OF GOODS SOLD

• Cost of finished goods • Cost of finished goods
applied disposed through sale returned by customers at the
to customers at the same same time debiting the
time crediting finished goods. finished goods account.
• Adjustment for under-applied • Adjustment of over-applied
factory overhead factory overhead.
• Balance of the account at the
end of the period at the same
time debiting income
summary.
 CHAPTER 4: JOB ORDER
COSTING

FINISHED GOODS - the cost of goods in manufacturing includes items such as

indirect labor, factory supplies, depreciation of factory equipment, and utilities

FINISHED GOODS
• Cost of inventory at the • Cost of finished goods sold
beginning. during the period at the same
• Factory cost of job order time debiting cost of goods
completed at the same time sold.
crediting work in process.
• Cost of goods returned by
the customer at the same
time crediting cost of goods
sold.
THANK YOU FOR
YOUR COMPANY!

Presented by : Group 3