Managerial Accounting

Eighth Edition

Weygandt ● Kimmel ● Kieso

Chapter 2
Job Order Costing

This slide deck contains animations. Please disable animations if they cause issues with your
device.
Chapter Outline
Learning Objectives
LO 1 Describe cost systems and the flow of costs in a job
order system.
LO 2 Use a job cost sheet to assign costs to work in process.
LO 3 Demonstrate how to determine and use the
predetermined overhead rate.
LO 4 Record manufacturing and service jobs completed and
sold.
LO 5 Distinguish between under-and overapplied
manufacturing overhead.

Copyright ©2018 John Wiley & Sons, Inc. 2

Assigning Costs to Finished Goods

LEARNING OBJECTIVE 4
Record manufacturing and service jobs completed and
sold.

When a job is completed, Wallace Company

summarizes the costs and completes the lower
portion of the applicable job cost sheet.

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 3

Assigning Costs to Finished Goods
(1 of 3)

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 4

Assigning Costs to Finished Goods
(2 of 3)

When a job is finished, Wallace transfers total cost to finished

goods inventory. Recording the finished job as shown.

Manufacturing Costs
Raw Work In Finished
Materials Factory Manufacturing Process Goods Cost of
Inventory Labor Overhead Inventory Inventory Goods Sold
Balance $12,000 $0 $1,400 $74,400
Job 101 (7) −39,000 +$39,000
Balance $12,000 $0 $ 1,400 $39,000 $39,000

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 5

Assigning Costs to Finished
Goods (3 of 3)
When a job is finished, Wallace transfers total cost to finished
goods inventory. Recording the finished job as shown.

Manufacturing Costs
Raw Work In Finished
Materials Factory Manufacturing Process Goods Cost of
Inventory Labor Overhead Inventory Inventory Goods Sold
Balance $12,000 $0 $1,400 $35,400 $39,000
Sale Job −39,000 +$39,000
101 (8)
Balance $12,000 $0 $ 1,400 $35,400 $0 $39,000

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 6

Flow of Documents (1 of 3)
Job cost sheet summarizes the
Source Documents cost of jobs completed and not
completed at the end of the
accounting period.

Jobs completed are transferred to

finished goods to await sale.

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 7

Flow of Documents (2 of 3)
Manufacturing Costs
Raw Materials Manuf. Work In Process Finished Goods
Inventory Factory Labor Overhead Inventory Inventory Cost of Goods Sold
(1) +$42,000
(2) +$32,000
(3) +$4,800
(3) +2,000
(3) +2,600
(3) +3,000
(3) +1,400
(4) -24,000 +$24,000
(4) -6,000 +6,000
(5) -28,000 +28,000
(5) -4,000 +4,000
(6) -22,400 +22,400
(7) -39,000 +$39,000
(8) -39,000 +$39,000
Balance $12,000 $ 0 $1,400 $35,400 $ 0 $39,000

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 46

Flow of Documents (3 of 3)
Accumulation
1. Purchase raw materials
2. Incur factory labor
3. Incur manufacturing overhead

Assignment
4. Raw materials are used
5. Factory labor is used
6. Overhead is applied
7. Completed goods are recognized
8. Cost of goods sold is recognized

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 9

Job Order Costing Service Companies
While service companies do not have inventory,
techniques of job order costing are still useful.
Consider:
• Mayo Clinic (health care)
• PricewaterhouseCoopers (accounting)
• Goldman Sachs (investment banking)
These companies track the cost of jobs performed for
specific customers to evaluate profitability of medical
treatments, audits, or investment banking engagements.
LO 4 Copyright ©2018 John Wiley & Sons, Inc. 10
Job Order Costing
Advantages
• More precise assignment of costs to projects than
process costing
• Provides more useful information for determining
profitability of particular projects and for estimating
costs when preparing bids on future jobs
Disadvantage
• Requires a significant amount of data entry

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 11

Do It! 4: Completion and Sale of Jobs
Onyx Corporation completed Job 109 and Job 112. Job 109 cost
$19,000 and Job 112 cost $27,000. Job 112 was sold on account for
$42,000. Using the format shown, record the completion of the two
jobs and the sale of Job 112 in the company’s job order cost system.

Work in Process Finished Goods Cost of Goods

Inventory Inventory Sold
Completed Job 109 −$19,000 +$19,000
Completed Job 112 −27,000 +27,000
Sold Job 112 −27,000 +$27,000

LO 4 Copyright ©2018 John Wiley & Sons, Inc. 12

Cost of Goods Manufactured

LEARNING OBJECTIVE 5
Distinguish between under-and overapplied
manufacturing overhead.

LO 5 Copyright ©2018 John Wiley & Sons, Inc. 13

Under- or Overapplied Manufacturing
Overhead
• A positive balance in manufacturing overhead means
that overhead is underapplied
• A negative balance in manufacturing overhead means
that overhead is overapplied
Any Year-end Balance in manufacturing overhead is
eliminated by adjusting cost of goods sold (COGS)
• Underapplied overhead increases COGS
• Overapplied overhead decreases COGS

LO 5 Copyright ©2018 John Wiley & Sons, Inc. 14

Under- or Overapplied Overhead (1 of 2)
Since Wallace’s overhead is
underapplied, we adjust the
overhead account and cost of
goods sold as shown in
illustration 2.28.

Manufacturing
Overhead Cost of Goods Sold
Unadjusted balance $1,400 $39,000
Adjustment −1,400 1,400
Adjusted balance $ 0 $40,400

LO 5 Copyright ©2018 John Wiley & Sons, Inc. 15

Under- or Overapplied Overhead (2
of 2)

LO 5 Copyright ©2018 John Wiley & Sons, Inc. 16

Do It! 5: Applied Overhead
For Karr Company, the predetermined overhead rate is 140%
of direct labor cost. During the month, Karr incurred $90,000
of factory labor costs, of which $80,000 is direct labor and
$10,000 is indirect labor. Actual overhead incurred was
$119,000. Compute the amount of manufacturing overhead
applied during the month. Determine the amount of under- or
overapplied manufacturing overhead.
Manufacturing overhead (140% × $80,000) = $112,000
applied

Under- overapplied ($119,000 − $112,000) = $7,000

manufacturing overhead (Underapplied)
LO 5 Copyright ©2018 John Wiley & Sons, Inc. 17
Copyright
Copyright © 2018 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
copies for his/her own use only and not for distribution or resale. The Publisher assumes
no responsibility for errors, omissions, or damages, caused by the use of these programs or
from the use of the information contained herein.

Copyright ©2018 John Wiley & Sons, Inc. 18