ACTG 1P11 – MA CHAPTER 3
JOB-ORDER COSTING SYSTEMS
A. Process costing systems:
a. For companies that produces large quantities of identical items.
b. Items pass through uniform and continuous production operations.
c. Costs are accumulated by process (department), and unit costs are
derived by dividing total costs by the total units produced.
d. Examples include:
(1) Paint and plastic manufacturers
(2) Chemical producers
(3) Metal producers
B. Job – order costing system
a. Used by companies that produce products to unique customer
specification; relatively small batches of different products.
b. A job is an individual product or batch for which a company needs cost
c. Costs are accumulated by job, i.e., by individual product or batch, so
the costs can be matched against the revenues generated
d. Can be used by service providers as well.
e. Examples include:
(1) Construction companies
(3) Printing companies
(4) Accounting firms C. The Flow of Inventory a) Raw Materials are taken out of inventory when needed for
production; raw materials used for production are added to WIP
b) When products are completed, they go into the finished goods
c) When good are sold, their cost is charged to cost of goods sold
a. Scheduling Production:
a) Produce to order or for stock inventory
b) Production schedule indicates quantity and types of inventory
scheduled for production
b. Purchasing and Tracing Raw Materials
a. A bill of materials indicates types and quantities of raw materials
used for each product or job
b. A purchase order is issued to the supplier to indicate raw materials
needed; a receiving report is completed to indicate the materials
received and the supplier’s invoice is processed by accounting by
agreeing it to the receiving report and purchase order
c. A materials requisition form is used by production to indicate the
raw materials needed from storage; raw materials records track the
ins and outs of each material, including cost.
d. Cost of materials added to production are charged to WIP, as part
of direct materials cost for each job
e. The job cost sheet accumulates costing data for materials used for
c. Tracing Direct Labour Costs
a. Time sheets, time tickets or some other labour time records are
filled out by factory workers as they work on jobs
b. Any time not spent on jobs is tracked separately and will become
“indirect labour” costs. d. Job Cost Sheet
a. The job cost sheet is used to accumulate and summarize the costs
of materials, labour and overhead for each job.
b. The per unit cost of each unit produced can be calculated as the
total job cost ÷ # of units
c. The total of job cost sheets on incomplete jobs acts as a subsidiary
ledger to the WIP inventory account
e. Manufacturing Overhead
a. By definition, overhead costs are not traceable to the cost object,
which in this case is the job
b. Therefore, overhead costs must be allocated using a common
D. Allocation of Manufacturing Overhead
a. In a job-order costing system, the cost of a job consists of:
• Actual direct material costs traced to the job.
• Actual direct labour costs traced to the job.
• Manufacturing overhead applied to the job using a predetermined
overhead rate. Actual overhead costs are not assigned to jobs.
b. Manufacturing overhead is assigned (applied) to each job using a
predetermined overhead rate.
Predetermined Estimated total manufacturing overhead cost
overhead rate =
Estimated total amount of the allocation base
c. Common allocation bases:
1. Direct labour hours 2. Direct labour costs
3. Direct material costs
d. Applied overhead = Overhead allocation rate × actual quantity
of allocation base
e. Overhead is allocated automatically as the allocation base in incurred,