Chapter 3. Job Order Costing
1. Process costing – produce a number of product over and over again with insignificant
differences. It is meaningless to cost them individually
2. Job Order costing- produce many different products
Note that cost helps to figure prices, profit margin, budgeting etc.
Bombardier would not be a job order costing, as it does not customize the product to your specification.
So it’s more likely to be in the middle.
Direct cost gets directly charged to jobs because they can be traced
Note that Manufacturing overhead including indirect cost are allocated to jobs – as per machine hours,
labour hours and others. For this purpose we use Predermined rate POHR and thus estimate the cost to
be and apply the POHR with the actual activity to find the cost.
Document flow summary:
Sale order is issued and production order follows.
Note that when materials are used, it could be direct or indirect.
All sorts of manufacturing overhead is accounted for in the job cost sheet.
Note that indirect raw materials go to mfg overhead account while direct materials go to work in
progress account. Mfg overhead is a self cancelling account where debits clear the credits.
Journal entry: Work in process.....................Dr.