JOB ORDER COST SYSTEMS
Dr. George A Gekas
These notes are posted on blackboard to high light and complement certain aspects of the topic, facilitate
those students who may have missed my lecture, balance traditional with internet based learning and
overall enhance students learning. The notes are not meant to suggest what may be in the exams, replace
textbook studying and/or problem solving.
There are two distinct types of cost accounting systems:
1. Job order cost system
2. Process cost system
Both systems produce the same results: calculate manufacturing costs, unit cost, cost of inventories
on hand and cost of goods sold.
Job order cost systems are used by companies that manufacture “one of a kind” products or
products that tailor to the specifications of individual customers. In a job order cost system the cost
of direct costs and manufacturing costs are accumulated separately for each job. If each job
contains more than one unit of product the unit costs are determined by dividing the total
accumulated job cost by the number of units produced.
Job order cost systems are used by construction firms, ship builders, motion picture studios,
furniture makers, print shops, repair shops, hospitals (each patient represents a job), law firms,
accounting firms and others.
Under a job order cost system manufacturing costs are charged separately for each job to the
work in process inventory (WIP) account. This controlling account is supported by a subsidiary
ledger of job cost sheets for each job performed.
The job cost sheets are completed when the job is done. It shows the cost of direct materials (D/M)
the direct labour (D/L) (e.g. hours times the hourly rate), the manufacturing overhead (O/H) (e.g.
rate times hours) and the total of all three. The total of D/M, D/L and O/H divided by the number of
units produced shows the total cost per unit.
Accounting for D irect Material (D/M)
Accounting for D/M is simple. Purchases of raw material inventories are recorded to the purchases
journal then posted to the subsidiary ledger of materials.
To obtain material for the production process a materials requisition form is issued from the