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8 JOB ORDER COSTING

INTRODUCTION

This topic covers Job Order Costing, the characteristics

of Job Order Costing (in terms of product types, cost
accumulation, cost ows and documentation) and the
determination of cost per job.
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8.1 JOB ORDER COSTING

•Job Order Costing

i. Costs are assigned to each job or to each batch of product to ful l customer’s
speci cations.
ii. Each job/batch has its own distinguishing characteristics.
iii.Examples: wedding invitation cards, custom furniture, custom t-shirt and birthday
cake.
iv.The objective is to compute the cost per job once the job completed.

• Characteristics of Job Order Costing in terms of product types, cost accumulation, cost
ows and documentation

Terms Details
Product Types Heterogeneous.
Cost Accumulation Cost
Each accumulated
job (batch) based
has itsondistinguishing
job. characteristics
Cost Flows Costs are charged to individual job. Total cost are
determined when the job completed.
Documentation Job Cost Sheet.

• Illustration shows the recording of costs in a job order cost system for Disney as it
produced two different lms.

Illustration 8.1: Costs in a job cost system

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• Example: basic overview of the ow of costs in a manufacturing setting for production of

a re truck.

Illustration 8.2: Costs ow

8.2 DETERMINATION OF COST PER JOB

• Calculate the cost per job

i. Cost per job consists of 3 components as follows:

Cost RM
Direct materials XXX
Direct labour XXX
Applied manufacturing overhead XXX

ii. The direct materials and direct labour costs can be traced to the job speci cally.
These costs involved directly in the making of the product.

iii.The manufacturing overhead is applied to the job based on a predetermined

overhead rate.

iv.Normal costing is used instead of the actual costing so that the cost of the job
can be determined without having to wait until the end of accounting period.

v. The cost of the job is determined when the job is completed, not at the end of the
accounting period.

vi.Based on the cost information, the management can decide on the pricing of the
product to be charged to the customer.

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Example 1 (Single department)

Kilang Perabot Kayu received an order from a customer to build 10 units of kitchen
cabinet. The costs involved in making the cabinets are RM15,600 and RM10,000 for
direct materials and direct labour accordingly. Manufacturing overhead was applied
based on the direct labour cost at the rate of 150%.

Required:

Calculate the cost of the job.

Solution

Cost RM
Direct materials 15,600
Direct labour 10,000
Applied manufacturing overhead (150% x 10,000) 15,000
Total Cost 40,600

Example 2 (multiple departments)

Syaz Sdn. Bhd. uses machine hour base to compute predetermined overhead for
Cutting Department and direct labour hour base for Assembling Department. In the
early of 2022, the management has predicted data as below:

Cutting Department Assembling Department

Direct labour hours 125,000 250,000

Machine hours 375,000 51,250

Direct labour costs (RM) 2,750,000 5,000,000

Manufacturing overhead (RM) 3,000,000 2,500,000

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Below is the order from Mr. Marc for July 2022:

Cutting Department Assembling Department

Direct labour costs (RM) 19,250 8,750

Direct materials costs (RM) 27,500 50,000

Machine hours 2,875 75

Direct labour hours 875 425

Required:
a.Calculate the predetermined overhead rate for Cutting Department and Assembling
Department
b.Calculate the total overhead costs for Mr. Marc’s order.
c.If the order contains 1,000 units of output, what is the cost per unit?

Solution

a. POR Cutting Department = RM3,000,000

375,000 hours
= RM8.00/hour

POR Assembling Department = RM2,500,000

250,000 hours
= RM10.00/hour

b. Total overhead costs for Mr. Marc’s order:

Cutting Department = RM8.00 x 2,875 hours = RM23,000

Assembling Department = RM10.00 x 425 hours = RM4,250

Total RM27,250

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c.Cost per unit If the order contains 1,000 units of output

Cost items Cutting Assembling Total

Department (RM) Department (RM) (RM)
Direct materials 27,500 50,000 77,500

Direct labour 19,250 8,750 28,000

Applied 23,000 4,250 27,250

manufacturing
overhead
Total 69,750 63,000 132,750

Therefore:
Cost per unit: RM132,750 = RM132.75/unit
1,000 units

• Source documents
i. Materials requisition form/slip
1.The information on the cost of direct materials used in the process
of completing the order/job can be traced to the material requisition
form.
2.Every material taken from the store must get the authorisation from
the storekeeper.
3. A material requisition form must be lled to request the materials
from store.
4.This form will be used to trace the cost of materials for each job
done in the factory.

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5.Example of materials requisition form:

ii. Time ticket

1.The information on the cost of direct labour involved in the job can
be traced to the time ticket.
2.Time ticket is the documents used to record the hours the worker
has worked.
3.In the case of a particular job, the worker may be required to clock
in the time he starts doing the job and the clock out the time he
nishes, every day he is doing the job. up from all workers’ time
tickets.
4.Example of time ticket

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• Calculate total manufacturing cost and the cost per job

i. Manufacturing costs consist of three components; i.e direct materials, direct
labour and manufacturing overhead.
ii. In job order costing, the costs of direct materials and direct labour on particular
job will be traced through material requisition forms and time tickets.
iii.The cost of manufacturing overhead is applied using a predetermined overhead
rate set by the business. Usually, normal costing is used in calculating the cost of
the job.

Example 3

Kilang Perabot Kayu had the following costs for January 2022:

RM
Beginning inventory:
Direct materials 5,000
Work in process inventory Job 01 3,000
Job 02 3,250

Information from direct materials requisition forms were as follows:

RM
Job 01 1,550
Job 02 1,340
Job 03 2,400
Job 04 2,365

Information from workers’ time tickets were as follows:

RM
Job 01 2,435
Job 02 4,125
Job 03 1,465
Job 04 3,215

Additional information:
1.Manufacturing overhead is applied at a rate of 140% of direct labour cost

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2. Jobs completed during the month were:

Job 01 – 50 units
Job 02 – 40 units
Job 03 – 20 units

3.Sales:
Job 01 – RM15,591
Job 02 – RM21,735

Required:
a.Calculate cost and cost per unit for each job.
b.Calculate the total cost of nished goods, the total cost of goods sold and total sales

Solution

a. Cost and cost per unit for each job.

Job Cost Table

Job 01 Job 02 Job 03 Job 04 Total

Beginning Work-In- 3,000 3,250 - - 6,250

Process (RM)
Direct materials (RM) 1,550 1,340 2,400 2,365 7,655

Direct Labour (RM) 2,435 4,125 1,465 3,215 11,240

Applied Manufacturing 3,409 5,775 2,051 4,501 15,736

Overhead (RM)
Cost per job (RM) 10,394 14,490 5,916 10,081 40,881

Units completed (unit) 50 40 20 -

Unit Cost (RM per unit) 207.88 362.25 295.8 -

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b.Total cost of nished goods, the total cost of goods sold and total sales

Total nished goods:

RM
Job 01 10,394
Job 02 14,490
Job 03 5,916
Total 30,800

Total cost of goods sold:

RM
Job 01 10,394
Job 02 14,490
Total 24,884

Total sales:

RM
Job 01 15,591
Job 02 21,735
Total 37,326

•Job Cost Sheet

i. A job cost sheet is a report/form used to record the summary of direct materials
costs, direct labour costs and manufacturing overhead costs charged to the job.
ii. It is also used to determine the total and unit costs of the completed job.
iii.Job cost sheet is reported once the production process has been completed.
iv.Companies keep a separate job cost sheet for each job.

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Illustration 3: Flow of Documents

Material
Requisition Form

Time Ticket Job Cost Sheet

Predetermined
Overhead Rate

Example 4:

IFA Electronics uses a job order costing method to produce electronic parts. On January
5, 2022, IFA Electronics received an order of 1,000 electronic sensors from Efayel
Company. This booking is labelled as Job 101. IFA Electronics started the job
production process on January 6, 2022. Below is the information from a related source
document.

Materials Requisition Time Ticket

Date Form
Cost (RM) Date Cost (RM)
6/1/22 1,000 10/1/22 9,000
12/1/22 7,000 31/1/22 6,000
26/1/22 4,000

Manufacturing overhead costs are applied based on direct labour cost basis (80%).
The Job 101 was completed on 31 January 2022.

Required:
Prepare Job Cost Sheet for Job 101.

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Job Cost Sheet

Job No. 101 Quantity 1,000

Item Electronic Sensors Date Started 5/1/22
For Efayel Company Date Completed 31/1/22

Date Direct materials Direct Labour Manufacturing Overhead

(RM) (RM) (RM)
6/1/22 1,000
10/1/22 9,000 7,200*
12/1/22 7,000

26/1/22 4,000
31/1/22 6,000 4,800**
12,000 15,000 12,000

Cost of completed job RM

Direct materials 12,000
Direct labour 15,000
Manufacturing overhead 12,000
Total cost 39,000
÷ production unit 1,000 unit
Cost per unit RM 39.00

* 80% x RM9,000

** 80% x RM6,000

•Suggestion to management on pricing policy based on Job Cost Sheet

i. From the Job Cost Sheet in Example 3 (IFA Electronics), RM39.00 is the cost
per unit for Job 101. Thus, if the price is set at RM39.00, it's only covers the
manufacturing costs. There are other costs such as selling and administrative
expenses should be considered.
ii. If the management intends to achieve a certain percentage of pro t, then the
desired percentage of pro t (mark-up) must be added to the cost per unit.

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Example 5:
IFA Electronics sets its pricing policy to be 100% mark-up on its manufacturing cost. To
determine the price per unit for Job 101.

Required:
Calculate the desired selling price per unit of Job 101

Solution

Price = Cost per unit + (100% mark-up on cost per unit)

= RM39.00 + (100% x RM39.00)
= RM39.00 + RM39.00
= RM78.00

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