ReSA

The Review School of Accountancy

R. Papa Cor. S. H. Loyola Sts. , Sampaloc, Manila
 Tel Nos. (02)82886922/09152303213/09086567516
New Era University
Advanced Financial Accounting & Reporting Cost Accounting – Job Order Costing
antonio jaramillo dayag
Cost Accounting – Job Order Costing
Definition

Cost Accounting refers to recording, classifying, and reporting all cost aspects of company
performance during a particular period of time. It is therefore, a system that records, summarizes,
analyzes, and interprets the details of the cost of materials, labor and overhead necessary to
produce and sell an article or a product. Cost accounting is usually considered only as it applies to
manufacturing and service organizations as well.

System of Cost Accumulation

The basic objective of cost accounting is the determination or accumulation of a product’s cost for
inventory valuation and income determination. The following systems may be used in accumulating a
product’s cost:
1. Actual (Historical) Cost System. Under this system, direct materials, direct labor, and factory
overhead costs are determined as they occur simultaneously with the manufacturing
operation but the total of these costs is known only as the operation has been completed. An
actual cost system collects the actual amounts of direct materials, direct labor, and factory
overhead that are incurred for each product.

2. Standard (Predetermined) Cost System. Under this system, costs are determined in advance
from analysis and forecasts made before the actual production begins. In a standard cost
system, standard unit costs are computed for the direct materials, direct labor, and factory
overhead; these amounts rather than the actual costs are carried to Finished Goods.

3. Normal Cost System. This system is a combination of the actual cost system and the standard
cost system. It accumulates only the actual amounts of direct materials and direct labor costs.
Factory overhead costs are accumulated on the basis of predetermined overhead rate.

Cost Accumulation Procedures (Methods)

Job order and process costing are the two most widely used cost accumulation methods, and they
have several aspects in common. Although, the ultimate cost object in both of these methods is the
unit of product, the two methods differ fundamentally in their approach to cost tracing. In job order
costing, cost is traced to an individual batch, specific units, lot or contract. In process costing, cost is
traced to a department, operation, or some other subdivision within the factory as long a it involves a
continuous flow rather than a series of separate jobs.
The most common cost accumulation methods or procedures are:
1. Job Order Costing
2. Process Costing

The third method, is a combination of job order and process costing,

3. Operation Costing/Blended Method / Hybrid Method

The fourth method was introduced because of Just-In-Time (JIT) Philosophy in Production,
4. JIT - Backflush Costing

Job Order Costing. This method is used when:

1. products are manufactured within a department or cost center are heterogeneous or
dissimilar products.
2. they are manufactured individually or in distinct lots or batches,
3. each job requiring different amounts of materials, labor and overhead.
Costs should be recorded separately for every job produced. Keeping of individual records is possible
only if the various inputs to a job can be easily identified. Detailed cost record must be kept for each
job and updated as work progresses. Job-order costing is applicable to made-to-order work in
factories, manufacturers of expensive, one of kind items such as building contractors, shipbuilders,

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and motion picture companies, workshops, repair shops, job printers, construction engineers, and
service business such as medical, legal, architectural, accounting and consulting firms.
Operation Costing/Blended Method/Hybrid Method/. In some manufacturing companies, different
units have significantly different materials costs, but all units undergo identical conversion in large
quantities. In these cases, direct materials costs are accumulated using job order costing, and
conversion costs are accumulated using process costing.

I – Actual and Normal Costing

For fiscal year 2021, Matz Solution it would incur total overhead costs of P1,200,000 and
work 40,000 machine hours. During January 2021, the company works exclusively on one job,
Job #458. It incurred January costs as follows:
Direct materials usage………………………………… P 121,000
Direct labor (1,400 hours)……………………… 30,800
Manufacturing overhead:
Rent………………………………………………………………… P 11,200
Utilities…………………………………………………… 15,200
Insurance…………………………………………………… 32,100
Labor……………………………………………………………… 15,500
Depreciation…………………………………………… 23,700
Maintenance……………………………………………… 10,800
Total OH……………………………………………………… 108,500
Total Manufacturing Costs…………………………… P 260,300
Machine hours worked in January: 3,400.
1. Assuming the company uses an actual cost system, compute the January costs assigned to
Job#458.
A. P253,800 C. P260,300
B. P251,800 D. P265,000
2. Assuming the company uses a normal cost system, compute the January costs assigned to
Job#458.
A. P253,800 C. P260,300
B. P251,800 D. P265,000
Disposition of Over-under applied Overhead Account
When factory overhead is over-under applied and a variance or difference results, either
of the following methods is acceptable to account for the difference in closing the
account (this is in accordance with the Cost Accounting Standards Board requirement):
1. If difference is insignificant (immaterial) to Cost of Goods Sold or Income Summary.
The over-or under applied factory overhead may be debited or credited to Cost of
Goods Sold (most common treatment or most convenient) or Income Summary. This has no
effect on unit cost and treats the entire variance as a PERIOD EXPENSE.
2. If difference is significant (material) to Cost of Goods Sold and Inventories. The
over- under applied factory overhead may be debited or credited to Cost of Goods
Sold and Ending Inventories (Work-in-Process and Finished Goods). This would change
cost per unit.
II – Job Order Costs Sheets
The Usry Company uses a job order costing system which is based on normal costs, and
overhead is applied on machine hours. The inventories on October 1: direct
materials,P2,000, finished goods, P5,000 (Job Order No. 1000), work-in-process, Job Order
No. 1001, the job had been assigned P130 for direct materials, P165 for direct labor cost
with 100 machine hours. Purchases of direct materials, 30,000 pieces @ P1.40 per piece.
Following are the additional costs incurred during the month.

Direct Direct Machine

Job Order Nos. Materials Labor Cost Hours
1001 P 4,100 P 1,375 1,300
1002 9,150 7,250 3,700
1003 11,275 14,325 8,200
1004 3,225 2,800 1,500
1005 6,500 6,100 3,200
1006 2,750 1,650 980

Manufacturing overhead costs are charged to jobs on the basis of P1.50 per machine hour
used. The actual manufacturing overhead cost for the month totaled P30,350. During
October, Job Order Nos. 1001, 1002, 1004, and 1005 were completed. Jobs 1001 and 1002 were
shipped out and the customers were billed for P9,000 for Job No. 1001 and P20,000 for
1002.

1. The cost of goods manufactured amounted to:

A. P55,495 B. P55,500 C. P56,495 D. P57,500

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2. The work-in-process on October 31 amounted to:

A. P25,675 B. P29,820 C. P43,770 D. P69,445

3. The cost of goods available for sale amounted to:

A. P55,495 B. P60,495 C. P60,500 D. P61,495

4. The finished goods on October 31 amounted to:

A. P 8,275 B. P17,400 C. P 30,675 D. P43,770

5. The cost of goods of goods sold amounted to:

A. P29,820 B. P29,375 C. P21,950 D. P7,870

6. The gross margins on Jobs 1001 and 1002 amounted to:

Job 1001 Job 1002 Job 1001 Job 1002
A. P1,200 P 1,850 C. P1,150 P1,850
B. 1,130 ( 1,950) D. 1,130 (1,850)
7. The direct materials on October 31 amounted to:
A. P 5,000 B. P 7,000 C. P 30,675 D. P43,770
III – Manufacturing Cost Computations
The following account balances and other information for Barfield Company pertain to
November operations:
Account Balances
November 1 November 30
Finished goods P 70,000 P 60,000
Work in process 50,000 ?
Direct Materials 10,000 25,000
Accounts payable ? 15,000
Accrued payroll 10,000 20,000
Accumulated depreciation – factory equipment 80,000 90,000
Other information:
a. Direct materials purchased on account during November, P50,000.
b. Rebecca Company applies factory overhead at a predetermined rate of P3 per
direct labor hour.
c. During November, direct labor employees worked 25,000 hours at a rate of P4 per
hour.
d. Jobs 385, 386, and 387 were still in process at the end of November. A total of
P5,000 of direct materials has been charged to these three jobs. To date, 5,000
direct labor hours have been worked on these jobs.
e. The accrued payroll account is used for factory employees only. Assuming no
payroll deductions, payment to factory employees during the month totaled
P140,000.
f. Factory overhead was underapplied by P5,000.
g. Payments on account totaled P55,000.
Required: Determine the following -
1. Direct materials charged to operations
2. Factory overhead applied during the month
3. Ending inventory of work in process
4. Cost of goods manufactured
5. Cost of goods sold before over-under applied
6. Indirect labor
7. Miscellaneous factory overhead
8. Accounts payable, November 1
IV
Fusion Company has the following data on April 30, 2021:

April manufacturing overhead…………………………………………………… P30,101.80

Decrease in ending inventories:
Materials……………………………………………………………………………………………… 2,430.00
Goods in process…………………………………………………………………………… 590.00
Increase in ending inventory:
Finished goods………………………………………………………………………………… 1,320.40

The manufacturing overhead amounts to 50% of the direct labor and the direct labor and
manufacturing overhead combined equal 50% of the total costs of manufacturing. All
materials are purchased FOB shipping point. What is the costs of goods manufactured?
A. P180,610.80 C. P182,300.80
B. P181,200.80 D. P183,200.80
*The happiest persons don’t have the best of everything in life. Perhaps, they’re just good in making the best of everything
that life brings along their way.*
*The greatest use of life is to spend it for something that will outlast it.*

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V – Normal Costing
Normal operating capacity of Warren, Inc. is 150,000 machine hours per month, the level
used to compute the predetermined factory overhead application rate. At this level of
activity, fixed factory overhead is estimated to be P300,000, and variable factory
overhead is estimated to be P150,000. During March, actual production required 140,000
machine hours, and the actual factory overhead totaled P435,000.
Required:
1. Determine the fixed portion of the fixed factory overhead application rate.
2. Determine the variable portion of the factory overhead application rate.
3. Is factory overhead for March over- or underapplied and by how much?
4. How much is the spending variance, and is it favorable or unfavorable?
5. How much is the idle capacity variance, and is it favorable or unfavorable?
VI – Departmental Rates
Carter Marketing Corporation uses job order costing system. It has three production
departments, X, Y, and Z. The manufacturing budget cost for 2021 is as follows:
Dept. X Dept. Y Dept. Z
Direct materials P 600,000 P 400,000 P 200,000
Direct labor 200,000 500,000 400,000
Manufacturing overhead 600,000 100,000 200,000
For Job 01 completed in 2021, direct materials cost was P75,000; direct labor, Department
X, P40,000, Department Y, P100,000, and Department Z, P20,000. The corporation applies
manufacturing overhead to each job on the basis of direct labor cost using departmental
rates predetermined at the beginning of the year based on the manufacturing overhead
budget cost. The total manufacturing cost of Job 01 is:
A. P385,000 C. P235,000
B. 310,000 D. 150,000

Wages are payments made on an hourly, daily, or piecework basis, whereas salaries are fixed
payments for managerial services. Other terms necessary for any discussion of labor costs are best
defined by equations, as follows:
Gross Earnings = Regular wage + Overtime Premium
1. Regular Wage = Total hours worked (including overtime) x Regular hourly rate
2. Overtime Premium = Overtime hours worked x Extra hourly compensation for overtime
Other Additional Compensation chargeable to Factory Overhead Control:
1. Overtime premium
2. Shift premium or differential
3. Bonus. Theoretically, a bonus is a direct cost of production. However, because the purpose of
cost accumulation is the establishment of a standard unit cost, bonuses are charged to
factory overhead.
4. Vacation and Holiday Pay
5. Pensions
6. Fringe costs. Vacation and pension plans are only two of the most common employee
benefits. Other fringe costs are listed below:
Employer’s share in (not employees’ share):
a. Social Security System
b. PhilHealth Contribution
7. Incentive Plans
Notes on Scrap:
Scrap includes:
1. the filings or excessive trimmings of materials after the manufacturing
operations.
2. defective materials that cannot be returned to vendor or not suitable for
manufacturing operations, and
3. broken parts as a result of an employee error or machine breakdowns that
causes the product in a poor quality condition.

Furthermore, scrap should be treated as:

1. If the scrap has a salvage value, it should be collected and placed in the
storage and available for sale to scrap dealers or anybody who are willing to
buy.
2. If the scrap is the result if filings, excessive trimmings or materials
residue, and the costs of scrap cannot be determinable then, the scrap,
notwithstanding that they cannot be eliminated in the production, a record of
quality of scrap should be maintained. The purpose is to keep track and

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periodically analyze to determine if some of the waste is due to inefficient

use of materials and if not eliminated, at least minimize.

Waste as distinguish to scrap materials refers to any amount of raw materials

left-over from a production process or production cycle for which there is no
further use. Waste is not usually salable at any price and must be discarded.

Notes on Spoiled Goods/Spoilage in Job-Order Costing:

Spoiled goods or spoilage differ from scrap, in the manner that they are
either partially or fully completed unit. For reason of being spoilage, they
cannot be corrected either because it is not technically possible to correct them
or it is not economical to correct them. For instance, a glass molded with
different design cannot be correctable since it will not be technically feasible
because by changing it would distort the original form or by changing the design
to its original form would cost more than the benefit to be derived.
VII – Accounting for Spoilage or Spoiled Goods
Harper Company’s Job 501 for the manufacture of 2,200 units, which was completed
during August at the unit costs presented below:
Direct materials………………………………………………………………………………………................……P 20
Direct labor…………………………………………………………………………………………………................…… 18
Factory overhead (includes an allowance of P1 for spoiled work)………… 18
P 56
Final inspection of Job 501 disclosed 200 spoiled units which were sold to a
local jobber for P6,000.
1. Assume that spoilage loss is charged to all production or due to internal
failure during August. What would be the unit cost of the product produced on
Job 501?
A. P53.00 C. P56.00
B. P55.00 D. P58.60
2. Assume that the spoilage loss is attributable to the exacting specifications
of Job 501 (or production run) and is charged to specific job. What would be
the unit cost of the product produced on Job 501?
A. P53.00 C. P57.50
B. P55.00 D. P58.60
Notes on Rework in Job Order Costing (Process of Reworking):
Rework is the process of correcting defective goods in order to bring them into a
salable condition. A defective unit normally arises when the product itself lacks
materials, labor and factory overhead.
VIII – Accounting for Defective Goods (Rework)
During March, Loryvi Company incurred the following costs on Job 109 for the manufacture
of 200 motors:
Original cost accumulation:
Direct materials………………………………………………………………………P 660
Direct labor………………………………………………………………………………… 800
Factory overhead (150% of direct labor)………… 1,200
Total costs……………………………………………………………………………………P 2,660
Direct costs of reworking 10 motors:
Direct materials………………………………………………………………………P 100
Direct labor………………………………………………………………………………… 160
Total costs……………………………………………………………………………………P 260
1. The rework costs were attributable to internal failure (to all production) or charged
to factory overhead, what is the cost per finished unit of Job 109?
A. P15.80 C. P14.00
B. P14.60 D. P13.30
2. The rework costs were attributable to the exacting specifications of Job 109 (or
production run) and the full rework costs were charged to this specific job. What is
the cost per finished unit of Job 109?
A. P15.80 C. P14.00
B. P14.60 D. P13.30
**The greatest mistake you can make is to continually fear making mistakes.**
**We are never given guarantees in life. We are only given the opportunities and
it is up to us to make the BEST out of it.**
**When all else is lost, the future still remains.**
*Waste no more time arguing what a good man should be. Be one.*
*A man is not finished when he is defeated. He is finished when he quits.*
*A great man is always willing to be little.*
***It is not who is right, but what is right, that is important**

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