TABANI’S SCHOOL OF ACCOUNTANCY

COST MANAGEMENT & ACCOUNTING

JOB ORDER COSTING

Job Costing

Job costing is used when a business entity carries out tasks or jobs to meet specific customer orders.
Although each job might involve similar work, they are all different and are carried out to the customer’s
specific instructions or requirements. In order words, job order costing is used in situations where many
different products are manufactured each period on request of customer. Examples of ‘jobs’ include work
done for customers by builders or electricians, audit work done for clients by a firm of auditors, and repair
work on motor vehicles by a repair firm. Another example is printing work, where printing job is done on the
specification of customers, not readily available for sales. It is simplest method of costing, where each job is
assigned a unique job number and all direct cost is allocated to respective jobs as they are incurred. However,
indirect cost is assigned to job costing mostly on absorption costing principle, however, marginal costing may
be used depending upon policy of company.

Job cost card or sheet

A job order cost sheet or card is a form prepared for a job that record all manufacturing costs both direct and
indirect and also non-manufacturing costs absorbed to specific job. It includes details of materials issued
along with quantities; direct labour including time consumed on each job and other direct expenses incurred
in connection with specific job. Indirect manufacturing cost and non-manufacturing costs are absorbed into
product or service cost on the basis of absorption rate as discussed in section 1.2. above.

Following examples reflect process of recording the costs into job order cost sheet or card.

Example:
The following cost information has been gathered about Job number 453.

The direct materials cost is Rs.10,000, the direct labour cost is Rs.6,000 and direct expenses are Rs.4,000.
Direct labour costs Rs.20 per hour. Production overheads are charged at the rate of Rs.30 per direct labour
hour and non-production overheads are charged at the rate of 40% of prime cost. Total production of job
number 453 is 5,000 units.

The job cost and unit cost for Job 453 is calculated as follows:

Job cost: Job 453 Rs.

Direct materials 10,000
Direct labour 6,000
Direct expenses 4,000
Prime cost 20,000
Production overhead (6,000 x 30/20) 9,000
Production cost of the job 29,000
Non-production overheads (40% of prime cost i.e. Rs.20,000) 8,000
Total job cost 37,000
Unit cost of job (37,000 / 5,000) 7.40

From the desk of Sir Majid Masood Page 1 of 5

TABANI’S SCHOOL OF ACCOUNTANCY
COST MANAGEMENT & ACCOUNTING

Q.1. ABC Company incurred the following costs to produce. Job No.586 which consisted of 1000 units of
product ‘A’.

Direct materials:

Req. No.99 500 yards of fabric at Rs.0.70 per yard.

Req. No.103 400 cubic feet of stuffing at Rs.0.40 per cubic feet.

Direct labour:
Time card No.72 500 hours at Rs.13 per hour.

Manufacturing overhead:

Applied on the basis of direct labour hours at Rs.3 per hour.

October 31: 600 units of product ‘A’ were delivered; remaining

400 units were finished but were still lying on the production floor

Required:
a) Prepare a job order cost sheet and record the information given above.
b) Pass journal entries to record all transactions.

Q.2. Pakistan Engineering Works uses a job-cost system. Consider the following data:

Job Date Date Date Total cost of Total Mfg.

No. Started Finished Sold Job as on Cost added
April 30 in May
1 26.-03-16 07-04-16 09-04-16 7,000
2 03-04-16 12-04-16 13-04-16 31,000
3 03-04-16 30-04-16 01-05-16 18,000
4 17-04-16 25-05-16 27-05-16 1,000 5,000
5 29-04-16 29-05-16 03-06-16 4,000 16,000
6 08-05-16 12-05-16 14-05-16 8,000
7 23-05-16 06-06-16 09-06-16 3,000
8 29-05-16 22-06-16 26-06-16 29,000

Required:
(i) Compute the cost of:

(a) Work-in-progress as at April 30 and May 31, 2016.

(b) Finished goods inventory at April 30 and May 31, 2016.
(c) Cost of goods sold for April and May 2016.
(ii) Prepare summary journal entries for the transfer of completed units from work-in process to
finished goods for April and May.

(iii) Record the sale of Job No.4 for Rs.10,000.

From the desk of Sir Majid Masood Page 2 of 5

TABANI’S SCHOOL OF ACCOUNTANCY
COST MANAGEMENT & ACCOUNTING

Q.3 Modern Engineering Workshop (MEW) is engaged in production of customised spare parts of
textile machinery. The following information pertains to the jobs worked by MEW during the
month of June 2014:
(i)
Job 101 Job 202
Size of job order 4,000 units 5,000 units
--------- Rs. in ‘000 ---------
Opening work in process 15,000 -
Raw material consumed 10,000 31,000
Direct labour used (Rs. 100 per hour) 5,000 8,000

(ii) Overheads are applied to jobs at Rs. 25 per direct labour hour. Under/over applied
overheads are transferred to cost of sales.
(iii) Job 101 was completed during the month and the goods were sent to the warehouse for
delivery to the customer. During the transfer to the warehouse, 160 units were damaged.
Net realizable value of the damaged units was Rs.500,000. Remaining units were
transferred to the customer.
(iv) Job 202 is in process; however, 2,000 units are fully complete and were transferred to the
warehouse during the month while 3,000 units are 70% complete as at 30 June 2014.

(v) Actual overheads for the month of June 2014 amounted to Rs. 4,000,000.

Required:
Prepare journal entries to record the above transactions.

Q.4. The following information has been taken from the job order cost system, used by Jahangeer Sons:

JOB NO. BALANCE JULY 1. PRODUCTIONS COST IN

JULY
21 RS.140,000 --
22 108,000 --
23 30,000 RS.166,000
24 50,000 130,000
25 -- 200,000
26 -- 121,000
27 -- 80,000

During July job no.23, 24 and 25 were completed and job no.21, 22 and 23 were sold on account at
25% above cost.

Required:
(I) Cost of finished goods inventory – beginning.
(II) Cost of goods in process inventory beginning
(III) Cost of finished goods inventory – ending
(IV) Cost of goods in process inventory – ending
(V) Cost of goods manufactured
(VI) Cost of goods sold
(VII) Sale revenue.
From the desk of Sir Majid Masood Page 3 of 5
TABANI’S SCHOOL OF ACCOUNTANCY
COST MANAGEMENT & ACCOUNTING

Q.5. Ahmer and Company is engaged in production of engineering parts. It receives bulk orders from
bicycle manufacturers and follows job order costing. On July 1, 20X3 two jobs were in progress
whereas two jobs were opened during the year. The details are as follows:
JOBS
A B C D
Work in process – opening (Rs.) 1,400,000 2,500,000 - -
Raw material issued from stores (Rs.) 800,000 1,200,000 1,500,000 600,000
Direct labor hours worked (Hours) 20,000 30,000 15,000 18,000
Rate of direct labor per hour (Rs.) 20 18 16 15
Other related information is as follows:
i. Factory overhead is applied to the jobs at Rs. 10 per labor hour.
ii. Actual factory overheads for the year amounted to Rs. 900,000.
iii. Under/over applied factory overheads are charged to profit and loss account.
iv. Job A was completed during the year. All the goods were shipped to the customers.
v. Job B was also completed during the year. However, about 10% of the goods were rejected
during inspection. These were transferred to Job C where they will be used after necessary
adjustments.
Required:
Journal entries to record all the above transactions can be prepared as follows

Q.6. RI Limited (RIL) is engaged in the manufacturing of spare parts for industrial machines. RIL
receives bulk orders from its customers and follows job order costing. Following data pertains to two
of the jobs which were started in the month of February 2018:

Job F01 Job F02

Size of job order (Units) 5,400 3,600
Labor hours used 27,500 21,600
Labor rate per hour Rs. 360 Rs. 400
i. Each unit of both jobs require 24 kg of raw material S40. Purchase price of S40 was Rs.30 per
kg.
ii. The inventory of S40 at beginning and end of the month was Rs.2,940,000 and Rs.1,740,000
respectively.
iii. Wages were paid on 28 February 2018. Income tax withheld from the wages amounted to
Rs.500,000 which would be deposited in government treasury in the following month.
iv. Job F01 was in process at month-end. However, Job F02 was completed during the month of
February and finished goods were sent to warehouse. During the delivery to the customer, 500
units were damaged badly and their realizable value is 50% of the cost.
v. Total labor hours utilized during the month were 100,000. Factory overheads are applied at
Rs.120 per direct labor hour. Under/over applied factory overheads are charged to cost of sales
at month-end. Total actual factory overheads amounted to Rs.11,000,000, out of which 40%
were fixed.
Required:
Journal entries to record the transactions for the month of February 2018.
From the desk of Sir Majid Masood Page 4 of 5
TABANI’S SCHOOL OF ACCOUNTANCY
COST MANAGEMENT & ACCOUNTING

Q.7. Gulshan Enterprises Limited (GEL) is engaged in the manufacturing of specialized drilling
equipment for the oil and gas industry. The following data pertains to the jobs undertaken by GEL
during the month of August 2023:

Job A227 Job B391 Job C528

Size of job order (units) 20 40 30
----------- Rs. in million -----------
Selling price per unit 55 72 10
Cost – opening balance 600 400 -
Cost incurred during the month:
– Material issued 280 1,760 1,600
– Labour cost incurred 10 40 20
– Factory overheads See note 1

Note 1: Factory overheads

Factory overheads are allocated to jobs on the basis of labour cost. During the month, factory
overheads amounted to Rs. 245 million.

On 16 August 2023, a special machine was hired on rent for three months, exclusively for use on
Job C528. A rent of Rs. 4.8 million was paid in advance, while the remaining amounting to Rs.
2.4 million will be paid at the end of the three-month period. The transportation cost incurred in
bringing the machine to the site amounted to Rs. 0.3 million. The costs incurred in respect of this
machine have not been included in the factory overheads amount.

Additional information:
(i) Job A227 was completed on 25 August 2023. Upon completion, unused materials
costing Rs.5 million were transferred to Job B391. All 20 units were transferred to the
finished goods store, from which 14 units were transported to the client on 31 August
2023. The remaining 6 units were transported on 2 September 2023.

(ii) On 31 August 2023, 16 units from Job B391 were completed and transferred to the finished
goods store. It is estimated that the further cost required to complete the job will amount to
Rs. 95 million.

(iii) In a fire on 10 August 2023, some of the materials issued on Job C528 having a cost of
Rs.18 million was destroyed. 80% of the materials were insured, and GEL received a claim
for those materials. The remaining materials were sold as scrap for Rs. 1 million.

Required:
Prepare journal entries to record the transactions for the month of August 2023. (16)

From the desk of Sir Majid Masood Page 5 of 5