JOB ORDER COSTING

TOPIC 7
 WHAT WILL YOU LEARN:

1 Definition of job order costing

2 Characteristics of job order costing

3 Determination of cost per job

4 Journal entries
 CONCEPT OF PRODUCT COSTING

PRODUC
T
COSTING

JOB ORDER PROCESS COSTING

COSTING

Its depends on:

PRODUCT TYPE
MANUFACTURING PROCESSES
 7.1 DEFINITION
❑ Job order costing (JOC) is cost assigned to
each job or to each batch of goods to fill a
specific customer order.

❑ Each job (batch) has its own distinguish

characteristics.

❑ The objective is to compute the cost of per job.

Examples are wedding invitation cards
and furniture
 7.2 Characteristics of JOC

❑Job or batches may be completed to fill a

specific customer order
❑The job and its associated costs can be
❑ .
identified
❑A job order costing measures costs for each
completed job
❑Each job (batch) has its own distinguishing
characteristics and differences
 7.2 Characteristics of JOC

CHARACTERISTICS JOB ORDER COSTING

PRODUCT TYPES PRODUCT IS HETEROGENOUS (VARIETY) –

product produce more than one type

COST FOR EACH JOB / ORDER

ACCUMULATION

DOCUMENTATION JOB COST SHEET

COST FLOW BY ORDER / JOB

PRODUCT CAN BE IDENTIFIED & DIFFERENCIATE FOR

EACH PRODUCT by customer specification /
order
COST FLOW IN JOB ORDER COSTING
 COST FLOW
WIP Inventory

Job 101

Direct Material
Job 102 Finished Goods
Direct labour
Inventory COGS
Overhead

Job 103
 7.3 Determination of cost per job

Source documents used to record the

cost chargeable to a specific job.

a) Material requisition slip

b) Time ticket
 USAGE SOURCE DOCUMENTS & JOB
COST SHEET

2 main source
documents

Material Time ticket

requisition slip

to record direct labour

to record raw materials
incurred
used
posting to

Job cost sheet

 Material requisition slip

● To achieve effective internal control over

issuance of materials, the storekeeper
should receive authorization before
materials are released to production.
● It indicate the quantity and type/cost per
unit of materials withdrawn.
● Source document for posting requisitions
of direct materials from materials
inventory account to work in progress
inventory.
 EXAMPLE:
Material Requisition Slip
Date: 1 Jan 2019 Job No :KAW 123
Department: Cutting Req No :1222

Description Quantity Cost per Amount

unit

P 110 250 RM150 RM37 500

P 115 100 RM120 RM12 000

Approved by :…………………………..
 TIME TICKET

❑ Job assigned by direct labour

record to time ticket.
❑ Time ticket is prepared when the
work is performed by direct
labour.
❑ The account work in progress
inventory is debited for direct
labour.
 EXAMPLE : TIME TICKET
Employee : Sugiman b Mahat Ticket no: 20/100
Employee No: 11018 Department : Cutting
Date : 1 Jan 2019

Start Stop Hours Rate Amount

7.00 12.00 5 RM10 RM50
2.00 5.00 3 RM10 RM30
Total 8 RM10 RM80

Approved by :………………………….
 DETERMINATION OF COST PER JOB

❑ Accumulates the costs of each

job produced
❑ When the job has completed,
cost per unit will be calculated
❑ Cost per unit= (total production
costs / total units produced)
 DETERMINATION PRODUCT COST PER UNIT

(USING NORMAL SYSTEM)

RM
Actual direct raw material XX
Actual direct labour XX
Applied Overhed XX
Product cost
XX**

** If information for Opening inventory WIP and

Ending inventory WIP exist ; Calculation for product
cost must include that information .
 EXAMPLE:
CALCULATION OF PRODUCT COST PER UNIT

Direct material RM 25 000

Direct labour RM 32 500
Applied overhead RM 19 500
Product cost RM 77000
If the opening inventory work in process exist, the product cost per
unit is calculated as follows:
Opening Work In Process RM 9 750
Direct material RM 25 000
Direct labour RM 32 500
Applied overhead RM 19 500
Product cost RM 86 750

Product cost per unit : Production Costs

Production units
 Example 1
Syarikat Dinamik
Estimated production costs
for the year ended 31st December 2018
Direct Materials RM 850 000
Direct labour 215 000
Prime costs 1 065 000
Overhead:
Factory building rent RM 50 000
Indirect labour 60 000
Electricity 45 000
Supervision 40 000
Insurance & tax factory properties 30 000
Depreciation factory building 120 000
Total Overhead 345
000
Total production costs 1 410
You are required to:
1. Calculate the predetermined overhead rate using direct
labour hours. The estimated direct labour hours is 20 000
hours, actual direct labour hours is 25 000 hours.
2. Calculate applied overhead.
3. Calculate job costs.
4. Calculate product cost per unit if output is 2 500 units
 Solution

POR = Estimated overhead

Estimated direct labour hours
= RM345 000
20 000 hours
= RM17.25/hour
Applied overhead=POR x Actual basis of
activity
=RM17.25/h x 25 000 hours
= RM431 250
 JOB COST

Direct material RM 850 000

Direct labour RM 215 000
Applied overhead RM 431 250
Job Cost RM 1 496 250
 Cost product per unit

= Job cost__
Production Units
= RM 1 496 250
2 500
= RM 598.50
 EXAMPLE 2
Syarikat Permata uses a job order system in each of its
manufacturing departments.
Department A on the basis of direct material cost
Department B on the basis of direct labour hours
At the beginning of 2019, the following estimates were
made:
Department A
Department B

Direct material costs RM 250 000 RM 43 000

Manufacturing Overhead RM 165 000 RM 155 000
Direct labour hours 16 000 hours 5 000 hours
Machine hours 1 000 hours 2 200 hours
 Actual data
Department A Department B
Direct labour hours 20 000 hours 10 000 hours
Direct labour costs RM 120 000 RM 35 000
Direct material costs RM 340 000 RM 44 000

Production Units : 500 units

Required :
1. Calculate POR for department A and B
2. Calculate applied overhead
3. Calculate product cost per unit
 ANSWERS

Department A:
POR (DMC) = RM 165 000 x 100 = 66%
RM 250 000

Department B:
POR (DLH) = RM 155 000 = RM 31.00/hr
5 000 hrs
 Applied overhead
Department A
Applied overhead =66% x RM340 000
= RM224 400

Department B
Applied overhead = RM31/hr x 10 000hr
= RM310 000
 Total Job costs

Department Department
A B
Direct material 340 000 44 000
Direct labour 120 000 35 000

Applied 224 400 310 000

Overhead
Total 684 400 389 000
 Product cost per unit

Department A cost + Department B cost

Production units
=RM684 400 + RM389 000
500
=RM2 146.80/unit
 JOB COST SHEET
❑ A form used to record the costs
chargeable to a job and to determine
the total and unit costs of the
completed job.
❑ Costs involved are :
❑ direct material,
❑ direct labour &
❑ applied overhead.
❑ One job cost sheet is assigned to each
job or batch.
 EXAMPLE 3
Samfe Sdn Bhd (SSB) uses job order
costing and applied overhead to
produce cabinets from wood.
On 25 Dec 2018, SSB received an
order of 20 units from Dapo Che Nah
Enterprise. The order is labelled as
Kaw 123.
SSB started the production process
on 1 January 2019.
 Cost incurred for Job Kaw 123

Time Ticket No. Description RM

30/100 8 hours @ 10 80
25/107 5 hours @ 20 100
25/110 24 hours @ 17.50 420

Materials Description RM
Requisition No.

A115 250 metre nyatoh@RM150 37 500

A225 150 metre meranti@RM120 18 000
 SSB applies manufacturing overhead to
jobs on the basis of direct labour cost.
The expected overhead costs are
RM47,360 and direct labour cost
RM2,560. On 15 Jan, Kaw 123 has been
completed and assigned to Dapo Che Nah
Enterprise on 20 Jan.

Required:
Prepare the job cost sheet for Kaw 123 job.
JOB COST SHEET FORMAT
Customer name : Dapo Che Nah Enterprise Job no. : KAw 123
Address :Kg Tersusun Kopisan, Gopeng.Perak

Product Description : Wood Cabinet

Date Started : 1 Jan 2019 Date Completed : 15 Jan 2019

DIRECT MATERIALS DIRECT LABOUR MANUFACTURING

OVERHEAD
Date Requistion No. Cost(RM) Date Ticket Cost(RM) Hours Rate Cost(RM)
/Cost
1/1/19 A115 37 500 1/1/19 30/100 80 600 1850% 11,100
A225 18 000 10/1/19 25/107 100

12/1/19 25/110 420

Total 55 500 600 11,100

Cost summary
Direct materials: RM 55,500
Direct labour : RM 600
Depends on applied Overhead : RM 11,100
activity base Total Cost : RM 67 200
Completed Unit: 20
POR rate Cost per unit : RM 3 360
 7.4 Journal entries
1. Record purchase of raw materials
2. Record raw materials (DM) used in manufacturing
3. Record indirect materials (IM) used in manufacturing.
4. Record direct labour (DL) cost used in manufacturing
5. Record indirect labour (IL) cost used in manufacturing
6. Record applied manufacturing overhead in manufacturing.
7. Record other manufacturing costs (actual) in manufacturing.
8. Record finished goods.
9. Record cost of goods sold.
10. Record sales of finished goods.
 Journal entries for
Job Order Costing
1: Record purchased of raw materials (Perpetual
system)

Dr Raw materials inventory xxx

Cr Accounts Payable /cash xxx

2 : Record raw materials used in manufacturing

(direct materials).
DM used
Dr Work in process inventory xxx
Cr Raw materials inventory xxx
 Journal entries for
Job Order Costing

4: Record direct labour cost used in manufacturing

DL used
Dr Work in process inventory xxx
Cr Factory wages payable xxx

6: Record applied manufacturing overhead

in manufacturing.

Dr Work in process inventory xxx

Cr Manufacturing overhead xxx
 Journal entries for
Job Order Costing

3, 5 & 7 : Record other manufacturing costs (actual)

in manufacturing including indirect material & indirect
labour.

Dr Manufacturing Overhead xxx IM used

Cr Raw materials inventory xxx
Factory wages payable xxx IL used
Prepaid factory insurance xxx
Accumulated depreciation xxx
Utilities payable xxx
Cash / Bank / Accounts payable xxx
 Journal entries for
Job Order Costing
8 : Record finished goods.

Dr Finished goods inventory xxx

Cr Work in process inventory xxx

9 : Record cost of goods sold (COGS).

Dr Cost of goods sold xxx

Cr Finished goods inventory xxx

10 : Record sales of finished goods

Dr Cash/Bank/Accounts Receivable xxx

Cr Sales xxx
 Adjustment either under-applied or
over-applied overhead

It will be done at the end of accounting period.

Adjustment to cost of goods sold.
Adjusting journal entries.
If over-applied overhead
Dr Manufacturing overhead xxx
Cr Cost of goods sold xxx
If under-applied overhead
Dr Cost of goods sold xxx
Cr Manufacturing overhead xxx
 EXERCISE
Syarikat Senyum Sdn Bhd (SSB) uses a job cost system to
produce cupcakes. The following transactions were made
in November 2018.

• Purchased raw material RM20,000.

• Direct raw material RM16,000 and indirect raw material
RM2,500 used.
• Direct labour involved RM22,000 and indirect labour
RM5,000.
• Overhead was applied at a rate of 150% of direct material
cost.
• Overhead expenses was RM18,000.
• Job completed and assigned to finished goods inventory
was RM60 000.
• Finished goods costs RM55 000 and credit sales RM75 000
 You are required

a) Prepare the journal entries to record the

transactions of Syarikat Senyum Sdn Bhd.
b) Calculate either over-applied or under-applied
overhead.
c) Prepare adjusting journal entry for applied
overhead.
 ANSWERS
a) DEBIT (RM) CREDIT(RM)
1. Raw materials Inventory 20,000
Accounts Payable 20,000

2. Work in Process Inventory 16,000

Raw materials inventory 16,000

3. Work in Process Inventory 22,000

Factory Wages Payable 22,000

4. Inventory Work in Process 24,000

Manufacturing Overhead 24,000
(150% x RM16,000)
 ANSWERS
DEBIT (RM) CREDIT(RM)
5. Manufacturing Overhead 25,500
Raw materials inventory 2,500
Factory Wages Payable 5,000
Cash 18 000
6. Finished Goods Inventory 60,000
Work in Process Inventory 60,000

7. Cost of Goods Sold 55,000

Finished Goods Inventory 55,000

8. Accounts Receivable 75,000

Sales 75,000
 ANSWERS

b) Overapplied /underapplied overhead

Actual Overhead = RM 25,500
Applied Overhead = RM 24,000

Under-applied overhead = RM 1 500

c) Adjustment journal :
Dr Cost of Goods Sold RM 1,500
Cr Manufacturing Overhead RM 1,500
(recording adjustment for under-applied overhead)