Department of Accounting

Chapter Two
Job Order Costing System
In the previous chapter, we have tried to classify and identify different types of costs incurred in
the production process. The entire costs incurred in producing a product must be recorded and
reported properly.
However, the accounting procedure in a manufacturing firm is more complex than the accounting
procedure in a merchandising firm and is different in the types of products manufactured, the number
of units produced and complexity of the manufacturing process. To properly account product costs and
report it in Income Statement and Balance Sheet, we need to have an accounting system that
accumulates and assigns them to the manufactured units.
In manufacturing firm, there are two basic accounting systems.
i. General accounting system
ii. Cost accounting system
i. General Accounting System: - It is a logical extension of accounting for merchandising
firms using the periodic inventory system.
 If the manufacturing firm produces single or relatively similar products, a periodic inventory
system can be applied.
 When we use this system, all the recording, posting and other accounting procedures are
the same as that of a merchandising firm practices. However, the adjustment procedure is
bit different.
 The year-and adjustment are almost similar except that there are additional efforts to adjust
direct materials and work-in-process.
 The two accounts are adjusted to the manufacturing summery account, where as the
finished goods are adjusted by the income summery account.
 The following table shows the balance of sales, beginning inventory of DM, WIP, FG and
manufacturing costs incurred during the year.
Sales 1,831,600
Beg. F.G. Inventory 157,500
Beg. WIP Inventory 110,000
Beg. D.M. Inventory 124,000
D.M purchase 441,600
D. Labor 437,500
Indirect labor 98,600
Dep. on factory equipment 44,600
Light and power 43,600
Dep. on Factory property 12,000
Insurance on factory property 9,000
Property tax 19,000
Factory supplies exp. 5,800
Miscellaneous factory cost 4,100
Assuming periodic inventory system, physical count at the end of the year shows:
End D.M 117,450
End WIP 131,600
End F.G 182,000
Adjusting Inventory:
Since periodic inventory system is assumed, adjustment for inventory is needed at the end of the
year.

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i. To adjust the beginning inventory
a. Direct Material inventory
Manufacturing summery ……………………124,000
Beginning direct material inventory ……………124,000
b. Work-in-process inventory
Manufacturing summery ……………………110,000
Beginning WIP inventory ………………………… 110,000
c. Finished goods inventory
Income summery ………………………… 157,000
Beginning finished goods inventory ……………157,000
To close the direct materials purchased, direct labor cost and factory overhead cost to the
manufacturing summery account.
Manufacturing summary 1,116,800
Purchase 441,600
Direct labor 437,500
Indirect labor 98,600
Depreciation on factory equipment 44,600
Light and power 43,600
Depreciation factory building 12,000
Insurance expense on factory property 9,000
Factory Property tax 19,000
Factory supplies expense 5,800
Miscellaneous factory cost 4,100
ii. The end inventory of D.M, work in process and finished goods should be adjusted (updated).
a. To adjust D.M and WIP
End direct material inventory...…….. 117,450
End work in process inventory...…… 131,600
Manufacturing summary …………………..... 249,050
b. To adjust finished goods end inventory
End finished goods inventory ……… 182,000
Income summery ………………………………… 182,000
Manufacturing summery
2 34,000 249,050
1,116,800
1,101,750
The balance of manufacturing summary shows the cost of goods manufactured and it will be
closed to the income summery;
Income summary ……………………..…. 1,101,750
Manufacturing summary …………………………. 1,101,750
After adjusting the beginning and ending inventory and closing the manufacturing summary etc.
the income summery and balance shows the cost of goods sold.
Income Summary
BFG 157,000 182,000 EFG
CGM 1,101,750
CGS 1,076,750
Other information’s of the company that helps to present a complete statement is provided as
follows.
Operating expense

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Selling expense ……………………… 330,000
Administrative expense ……………. 168,850
Sales and operational expenses are closed to the income summery
i. To close sales
Sales …………………………….. 1,831,000
Income summary ………………………..1,831,000
ii. To close Selling and Adm. expense
Income summary ……………………… 498,850
Selling expense ………………………………… 330,000
Administrative expense ………………………. 168,850
NB: After adjusting and closing accounts, the balance income summary a/c shows net income or
net loss.
Income summary
1,076,750 1,831,600
498,850
256,000
The balance of income summary account is closed to the appropriate capital account.
Income summary ---------------------------256,000
Abebe capital --------------------------------------------------256,000
ii. Cost Accounting System
 It is a system that uses a perpetual inventory system, which helps it to achieve greater accuracy in
determining product cost than general accounting system.
 It is also used for making effective control
 It is used to determine fair unit cost of manufacturing products
 There are two different cost accounting system
A. Job order costing system
B. Process costing system
A. Job order costing system (JOCS): is a system that provides a separate record of cost of each
particular quantity group of product (Jobs ordered) that passes through the factory.
 It accumulate costs for a particular batch of production (Job)
 Each job has different starting and completion time.
Eg. The production of 10 pieces of windows or 50 coffee tables.
 In job order cost system, costs are accumulated by job. Thus, firms maintain a separate job
cost sheet, on which manufacturing costs of each job are accumulated.
B. Process Costing: Process Costing is appropriate for production environments that involve high
volumes of homogeneous products. Costs accumulated by department and are assigned to units of
products by dividing the total costs incurred by the equivalent units of production
Job costing and process costing are extremes along a continuum of potential costing systems.
Each company designs its own accounting system to fit its underlying production activities. Some
companies use hybrid costing systems, which are blends of ideas of both job costing and process
costing.
Job-costing Process-costing
System system

Distinct units of Masses of identical

a product or service or similar units of
a product or service

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Examples of Job Costing and Process Costing in the Service, merchandising, and Manufacturing Sector
Service Sector Merchandising Sector Manufacturing Sector
-Auditing engagements -sending special-order items by mail order -Aircraft assembly
Job -Consulting-firm engagements -Special promotion of new store products -House Construction
Costing -Advertising-agency campaigns
Used -Law cases
-Auto-repair shops

Process -Bank-check clearing

Costing -Postal delivery -Grain dealer -Oil refining
Used (standard items) -Lumber dealer -Beverage production

In this chapter, we focus on job costing systems. The discussion below assumes that a paper-based
manual system is used for recording costs. Cost and other data are recorded on materials
requisition forms, time tickets, and job cost sheets
Job order costing system in manufacturing firm
There is a parallel relationship between physical flow of production (work flow) and the cost
accounting cycle (cost flow).
Work and cost flow in job order costing cycle
Work flow is the sequence of operating activity that begins with the decision to order direct material
and ends with finished goods sold to customers. The steps involved in the production process (work
flow) can be presented as follows.
1. A decision is made to order basic direct materials.
2. Direct Materials and supplies are ordered from vendor (suppliers).
3. Direct Materials are received and placed in the store room.
4. A decision is made to manufacture a product
5. Direct Materials and supplies are issued from store room and placed in to production
6. Direct Labor employees work on transforming the Direct Materials in to Work-In-Process
7. Other indirect costs are incurred in the process of transforming Direct Materials in to Work-In-Process.
8. The work in process is completed and become finished goods.
9. The finished goods are sold to various customers & cost incurred on it becomes cost of goods sold.
The above steps are discussed in detail
1. Purchase requisition
For commonly used direct materials, factories have a recorder level, at which the direct materials
are requested. Therefore, purchase requisition is a form that used to request purchase of materials.
It is prepared by the stock clerk.
Reorder level:- is the minimum amount of stock that should be on hand before another
purchase requisition is prepared.
- It is used to avoid stock out (stock shortage) due to unexpected heavy usage, delays and
other reasons.
- It will be filled and sent to the purchasing department.
- The form contains
a. the date at which the form is prepared
b. a description of Direct Materials required
c. the quantity of the material in question
d. the date, when the material is required
e. the requisition number
- No journal entry is passed for requisition
1. A sample of purchase requisition form looks like the one on the next page:

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Department of Accounting
ALDER Furniture Factory
purchase requisition form
Date January 5, 2004 Requisition no. 121
Purchase requisition form
Prepared by:
Quantity Description Date needed
1,000.00 board ft Lumber (eucalyptus) January 15, 2004

5 gallons Glue January 15, 2004

50 boxes Nails January 15, 2004

2. Purchase order
 It is a document that authorizes a supplier to ship the specified direct materials ordered on the
form.
 It is prepared by the purchasing department on the bases of the purchase requisition.
 The purchase order form contains the followings
a. the name of the company, giving the order
b. a purchase order number
c. the date at which the purchase order is prepared
d. the requisition number
e. the name and address of the supplier
f. the quantity and description of the material
g. the delivery date
h. the price and terms of payment
i. the transportation terms (FOB-Shipping/FOB-Destination)
- No journal entry is passed for purchase Order
2. A sample purchase order looks the following:
ALDER Furniture Factory
Purchase order form
Date January 6, 2004 Purchase No. 496
Vendor
Gentle lumber processing
Arat Kilo
Close to AAU, Science faculty
F.O.B point Ship Via Terms Delivery date Requisition no.
Factory site Tana Transport 2/10, n/30 Jan. 15, 2003 121
PLC
Item no. Quantity Description Unit price Total
1. 1,000 board ft. Lumber 20 20,000.00
(eucalyptus)

3. Receiving report
 It is a form that used to list the description and quantities of the goods received.
 It is prepared by a receiving department and sent copy of the documents and the material to
the storeroom clerk.
 The accounting department, then records the materials received based on the receiving report
and the supplier’s invoice as follows.
Direct Material ---------------- 20,000
Account payable --------------------20,000
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Department of Accounting

3. A sample receiving report is shown below.

ALDER Furniture Factory
Receiving report form
Received from: Receiving report No. R
Gentle lumber processing Arat Kilo 1345
Close to AAU, Science faculty
Freight: Purchase order No. 496
Pd X C o l l ect
Date received: February 15, 2003 Received by: Tsega G.
Quantity Description Weight
Gross Net
1,000 board ft. Lumber (eucalyptus)
4. Production order
 It is a form that used to order production of items.
 It is prepared and approved by a manager in change of the production department.
 Production may be made to a customer’s order or just for stock.
 The production order form contains the following.
a. The description of the product to be manufactured
b. The quantity required
c. The estimate date of completion
d. The job order number
e. The date of the production order
f. The authorization signature.
4. A sample production order is presented here below.
ALDER Furniture Factory
Production Order
Date: January 19, 2003 Job No. 365
Manufactured for: Stock
Date needed: March 20, 2003
Quantity Model number Description
150 F. 4152 Coffee table
Authorized by: Dereje Demissie
5. Materials requisition
 It is a form that used to requisite raw materials and indirect materials required for
production. It is prepared by the production department. The material order form
contains the following;
a. The job number for which the materials are required
b. The descriptions of the direct materials and supplies needed
c. The quantity of each direct materials and supplies needed
d. The unit cost of each materials
e. The total cost
f. Classification as to direct and indirect material
When direct materials are issued from storeroom, the following entry is recorded.

Jan. 28, 200x Work in process ----------------------- 10,000

Manufacturing over head-----------------52
Chapter Two/ JEMAL S Direct materials and supplies ------------10,052 6
Department of Accounting

5. A sample material requisition form is shown below:

Material requisition No. 906 Date: January 28, 2003
Job No. to be charged: 365
Quantity Description Unit cost Total cost Classification
500 board ft. Lumber 20 10,000.00 Direct
1 box Nail 22 22 Indirect
1 Gallon Glue 30 30 Indirect
10,052.00
Direct materials -------10,000.00
Authorized signature Indirect materials -----------52.00

Job cost sheet:- It is a form that used to accumulate the manufacturing cost incurred in producing
a particular product.
 It maintains the break down of manufacturing costs (D.M, D.L and MOH)
 The total cost is then divided by the number of units produced to determine the unit cost of
each items produced.
 A separate cost sheet is maintained for each job
 The value of WIP (at any time) can be found by adding the different job cost sheets maintained
by the factory.
6. A sample job cost sheet is shown below:
Job Cost sheet
Job No. 365 Date started: Jan. 29, 2003
Date completed: March 20, 2003
Item 4152 – coffee tables
For stock
Direct material Direct labor Manufacturing overhead
Date Req. Amount Date Hours Amount Date DLH Rate Amount
No.
Jan. 28 906 10,000
2003
Cost summary
Cost item Amount
Total direct material
Total direct labor
Total manufacturing overhead applied
Shipping summary
Date Number of units shipped Cost balance

6. Job time ticket:

 It is a form that used to record how much time spent on a particular job.
 When a job is started, the employee fills the time he/she start operation, on the job time ticket
and he/she also punch out the card and fills the time he/she stopped, when he left the job.
Assuming that the job time ticket showed direct labor of 9,600.00 and indirect labor of br 4,800.00,
the journal entry to record the cost of direct and indirect labor is as follows.
Work in process ------------------ 9,600
Manufacturing over head------- 4,800
Wages payable --------------------14,400
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Department of Accounting

NB: Idle time may exist be cause of machine breakdown, material shortage, shift of employee
from one job to the other. The cost of idle time should be absorbed by all units produced.
Thus, it must be debited to MOH.

MOH ------------------------------------- 1,000

Idle time cost (wage payable) -------- 1,000

7. A sample of job time ticket is shown below

Job time ticket
Employee’s Name: Date: March 5
Department: Sanding Time started: 8:30 am
Time completed: 11:30
Operation: Sanding Job no. 365
Hours Rate of pay Direct labor Comment
3 hrs. 8 24

7. Manufacturing overhead: are costs other than direct material and direct labor that are
necessary to transform the raw materials in to finished goods.
 Such costs are not directly traced to a specific job. Thus it has to be assigned to the d/t cost
object in some way.
 If actual overhead is used, the unit produced in some months may improperly absorbs
huge costs and there by in creasing unit cost.
E.g. A manufacturer produces 500 coffee tables on February and 100 coffee tables in August.
Assume a MOH was 30,000 in both months and D.M, and D.L per unit totaled br. 108. The
unit over head cost become 60 for those produced in February opened the total becomes
168 (cost 108). For August Br 300 (30.00/100) and the total becomes Br. 108.
Therefore, this shows that, if we use the actual MOH cost the same product will change different
amount.
Assuming that the firm increases which additional MOH cost of br. 30,000 in August, the total
unit cost becomes br.600.
Therefore, to avoid such problems the total cost of manufacturing overhead should be changed
through out the total units produced in that period. But, to do so, the total amount can only be
known at the end of the year. That means, the firm has to wait until the end of the period, to
determine the total actual overhead cost.
 This cost is accurate but it is untimely. Thus, it is irrelevant.
 The untimely ness of these information prohibits the preparation of insertion financial
statement (used to make control). Therefore, it is important to estimate the cost in advance
and apply it to each job using some allocation bases.
Selection of Allocation Bases
In order to allocate overhead costs, some type of allocation base common to all products being
produced must be identified.
 The allocation basis is assumed to be a cost drive of the manufacturing overhead costs.
 For example, labor intensive firm should use labor oriented base, and a machine based firm
should use machine oriented base, since most of these overhead costs may respond to a
change to the allocation base.

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 The commonly used allocation bases are
i. Direct labor cost
ii. Direct labor hours
C. Machine hours
D. Material costs
E. Prime costs
The most widely used allocation bases are direct labor-hours, direct labor costs, and machine-
hours.
Example
ABC furniture factory estimated the following for the next year
 Manufacturing overhead cost ------------------ 675,000
 Direct labor cost---------------------------------- 450,000
 Direct labor hours-------------------------------- 90,000
 Machine hours------------------------------------ 45,000
 Direct material cost ------------------------------ 225,000
Predetermined Overhand Rate (POR): is a rate that is used to allocate overhead costs to each job.
It is calculated using the estimated overhead cost and some activities base that has a cause and
effect relationship with the estimated overload cost.

Estimated overhead cost

POR
Estimated activity base

Labor Intensive firm

A. Direct labor cost: is the most popular and widely used type of overhead allocation base for a
labor intensive firm.

Estimated overhead cost

POR =
Estimated labor cost

 It is simply found on the payroll (previous)

Limitation
 It is implacable to use it when the hourly rate is different from employee to employee.
 Assume that employee A and B works in the same organization but Mr. A exam br. 5/hr
and Mr. B earns 10 hrs. Both have worked for 40 hrs on similar jobs; Mr. A, job No. 452 and
Mr. B, Job No. 453.
Allocation of overhead cost on the bases of labor cost
675,000
P.D.R   150%or1.5
450,000

Employee A Employee B
Salary for 50 hours 40 x 5 = 200 40 x 10 - 400
Job No 452 Job No 453
Manufacturing overhead applies 1.5 x 200 = 300 1.5 x 400 = 600
The journal entry to recorded MOH applied is

Work is process …………… 900

MOH applied (300 + 600)…………900
The manufacturing overhead applied account is a contra account to the actual MOH cost.

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When actual MOH costs are incurrent, they should be recorded. Assume that factory rent,
utilities and other manufacturing cost totaled br. 22,000.
MOH ………. 22,000
Cash/Account Payable ………….. 22,000
B. Direct Labor hours – when the hourly labor cost varies from employee to employee, their
method is more appropriate for MOH cost allocation.
Given the above assumption
675,000
POR   7.5 perhour Estimated Overhead cost
90,000 P.O.R =
Estimated Labor hours
Employee A Employee B
MOH applied 40 x 7.5 = 300 40 x 7.5 = 300
It allocates the MOH cost effectively whether the hourly ways rate is uniform or different
Work in process …………… 600
MOH in applies …………………. 600
2. Machine Intensive Firm
Machine hours:- it is applicable to allocate MOH to jobs when the firm is machine intensive.
Estimated Overhead cost 675,000
POR = POR   15 perhour
Estimated Machine hours 45, ,000
Limitations
Machine hours are not readily available for the upcoming year. Suppose that job no 452 and job
no 453 requires 20 and 25 labor hrs respectively.

Job No. 452 Job No. 453

Machine hours 20 22
Most applied 20 x 15 = 350 22 x 15 – 330

Work in process…………………… 300

MOH applied ……………………………. 300
3. Cost of Materials: it is another alternative to apply MOH to jobs
675,000
POR   3 times the material cost
225, ,000 POR = Estimated Overhead cost
Suppose that job 452 consumed D. material cost 7 110 and Estimated Material cost
job 453 consumed D. material cost of
120.
Job No. 452 Job No. 453
Material cost 110 120
MOH applied 110 x 3 = 330 120 x 3 = 160
This method is not used widely because very few overhead costs are affected by the function of
direct materials used in production
4. Prime Costs: - It is used as an allocation base when MOH costs are assumed to be affected by
the function of both direct labor and direct materials used in production.

POR = Estimated Overhead cost

Estimated Prime cost
675,000
POR   1 per prime cost
675, ,000
Suppose job No. 452 and 453 consumed prime costs of Br. 320 for each

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 Department of Accounting
Job No. 452 Job No. 453
Prime cost (consumed) 320 320
MOH applied 320 x 1 = 320 320 x 1 = 320
8. Finished Goods Inventory Lodger Card: It is a card that used to record all the goods, the
process of which is completed and is ready to be stored or dispatched.
Assume that the factory produced 150 unit of coffee table by incurring a total cost of Br. 21,500. To
record the F.G. inventory, the following entry is required
Finished Goods Inventory ………………. 21, 400
Work in process ………………………………........ 21,400
9. Cost of Goods Sold: Under perpetual inventory system, two records are maintained
i. For sales
ii. For cost of goods sold
Example
Assume that half of the coffee tables are sold for 130 each with a 40% down payment.
To record the sales
Cash ………………….. 5, 400
Account receivable …. 8, 100
Sales (75 * 180) 13, 500
To record the cost of good sold
Cost of goods sold …………………… 10, 700
Finished Goods Inventory ……………….. 10, 700
In general, a firm’s cost Accounting system is parallel to its flow of operation. The previous nine
steps can be summarized as follows
1. Procumbent: Raw materials or supplies needed for manufacturing are ordered, received and
stores.
2. Production: Raw materials are transferred from storeroom to factory.
3. Warehouse: Finished goods are moved from the factory to the warehouse to be held until
they are sold.
4. Selling: Customers are found. Merchandises are shipped from the warehouse and
customers’ accounts are charged.
In general, there are seven steps to assign costs to an individual job. This seven step procedure
applies equally to assigning costs to a job in the manufacturing, merchandising, and service
sectors.
Step 1: Identify the job that is the chosen cost Object.
Step 2: Identify the Direct costs of the Job. Direct material and direct labor
Step 3: Select the cost-Allocation Bases to Use for Allocating Indirect Costs to the Job
Step 4: Identify the Indirect Costs Associated with Each Cost-Allocation Base: i.e. FOH.
Step 5: Compute the Rate per Unit of Each cost-Allocation Base Used to Allocate Indirect costs to the Job
Step 6: compute the Indirect costs Allocated to the Job.
Step 7: Compute the Total Cost of the Job by Adding all direct and Indirect costs Assigned to the Job.

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The following diagram shows the above points:

Procurement Production Warehousing Selling

Raw materials Work in process Finished good CGS

In Out In Out In Out In

Direct labor

Out

MOH

Out

Actual costing versus normal costing

 The use of applied overhead instead of actual overhead has the advantage of timeliness
and hence it is relevant for decision making.
 It is not as accurate as the actual overhead cost.
 Actual overhead rate makes product costing untimely, and this in turn affect decisions like
product pricing and controlling operations. Therefore, most firms use an applied overhead cost
than actual cost for indirect manufacturing cost.
Normal costing: is a costing system where the actual D.M. and D.L are added to the WIP
inventory at actual amount, and overhead costs are applied to the WIP inventory using
PDR.
Actual costing: is a costing system where the actual DM and DL cost are traced to the job and
actual overhead cost is allocated to each job suing actual cost driver.
Still the amount charged to the job doesn’t represent what the job actually consumed; because, we
are still allocating MOH cost to jobs.
The following table shows summary of actual & normal costing
Cost assignment Actual costing Normal costing
Direct material cost Tracing Actual Actual
Direct Labor cost Tracing Actual Actual
Manufacturing Allocation Actual MOH rate x Estimated MOH rate
overhead costs Actual cost driver x actual cost driver
Disposition of over and under applied MOH cost
The actual MOH cost rarely much with the MOH cost applied. If the amount of applied MOH
cost is less than the actual amount, the difference is said under applied overhead or under
observed; but if the MOH cost applied is greater than the actual cost, the difference is said over
applied. Under or over applied MOH cost should not be carried for the coming period rather it
should be disposed off in the period the difference occurred in two ways.

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i. By charging it in to cost of goods sold
Example: The MOH control a/c has a debit balance of br 607, 500 and MOH cost applied is br.
540, 000.
607, 500 – 540, 000 = 67, 500 under applied
This amount will be disposed to C.G.S as follows
Cost of goods sold …………….. 67, 500
MOH cost applied …………….. 540, 000
MOH cost control ……………………. 607, 500
ii. By prorating to the WIP, F.G. and C.G.S
Assume that the MOH control a/c shows debit balance of br. 192, 650, which shows an over
applied balance 7 br 2, 700. The over applied amount of MOH cost will be prorated to WIP, F.G
and C.G.S by one of the following ways.
End of year balance Most allocated component of year
Account
before proration and balances before proration
Work in process 11, 400 3, 907
Finished Goods 18, 600 7, 814
Cost of goods sold 427, 500 183, 629
Total 457, 500 195, 350
a. Duration on the basis of most applied
Account Most cost Proration of the over Balance after
Account
Balance applied (%) allocated MOH proration
Work in process 11, 400 3, 907 = 2% 0.2 x 2700 = 54 11, 346
Finished Goods 18, 600 7, 814 = 4% 0.4 x 2700 = 108 18, 492
Cost of goods sold 427, 500 183, 629 = 94% 0.94 x 2700 = 2538 424, 962
Total 457, 500 195, 350 2, 700 454, 800
To show the above proration, the following journal entry is required.
Manufacturing overhead applied …………… 195, 350
Work in process ……………………………………………… 54
Finished goods ………………………………………………. 108
Cost of good sold ……………………………………………. 2, 538
MOH cost control …………………………………………… 192, 650
N.B.
When over allocated is prorated; the three accounts must be reduced.
- When under allocated is prorated, the three accounts must be decreased.
b. Proration on the basis of the year end balance
Account Proration of the over allocation Account Balance
Accounts
Balance overhead after proration
WIP 11, 400 11,400/457, 500 = 0.25 11, 332.50
18, 600 18, 600/456, 500 = 0.04 18, 492
F.G
0.04 x 2700 = 108
427, 500 427, 500/457, 500 = 93.5% 424, 975.50
C.G.S
0.935 x 457, 500 = 2, 524, 50
Total 457, 500 2, 750 454, 800
MOH cost applied ……………….. 195, 350
WIP ………………………………………….. 67.50
F.G…………………………………………… 108.00
C.G.S………………………………………… 2, 524.50
MOH control …………………………… 192, 650.00

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Illustration
2. In ABC Furniture factory, the following production order is given
Job No. 555 ……………….. 100 student chair (St. Mary’s order)
Job No. 556 ……………….. 30 coffee tables (for stock)
Job No. 557 ……………… 20 cup boards (for stock)
3. Beg. D.M inventory consists of
Material A……………………. 22,400
Material B……………………. 15,600
Material C ……………………. 21,000
Total ……………………… 59, 000
4. D.M. Purchased on Jan. 26 from XXX-Wood processing by the terms of 2/10, no/60 is br. 118,000.
The details are
Material A ……………….. 2, 000
Mateiral B ………….….... 32, 000
Material C …………….… 80, 000 D.M. and supplies a/c is a controlling a/c
Material D …………..…… 4, 000
Total ………….. 118, 000
5. Production is started and the following materials are issued.
Material B…………………… 20, 000
Material C …………………... 12, 000
Total …………………….. 32, 000
Job charged are as follows
Job 555 ………………. 12, 870
Job 556 …………………6, 400 For allocation on job cost sheet
Job 557 ………………. 12, 800
Total ………….. 32, 000
6. The D. L cost totaled br. 25,000 (20, 000 is indirect labor) was applied. The D.L. cost is applied for job
No. 555 and 557 40% each and 20% for job No. 556.

7. Additional raw materials are issued totaling br. 78,000

Market B ………………….. 18, 000
Market B ……………………23, 000
Market C …………………... 31, 000
Market D …………………… 6, 000
Total ………………….. 78, 000
Out of 78, 000 materials costing 18, 000 are indirect.
The three jobs are charged the 60, 000 D.M. cost as follows
Job 555 ………………. 24, 000
Job 556 …………………12, 000 For allocation on job cost sheet
Job 557 ……………….. 24, 000
8. Indirect manufacturing cost incurred during the month is br 4, 000.
9. The payroll for the month totaled br. 48, 000 (20, 000 is indirect labor). The direct labor cost is charged
for the three jobs as follows.
10. MOH cost is applied at 70% of D. L cost (D.L.C = 28,000 + 5, 000)
11. Other actual manufacturing cost for the month is totaled br. 19, 800.
12. Job No. 555 and 556 are completed and transferred to the Finished Goods inventory warehouse.
13. The college has paid br. 85 per student chair and 5 coffee tables are sold for br. 1, 400 each during the
month.
Required
 Prepare the journal entry for each of the above transactions (activities)
 Using job cost sheet, record the costs for each of the job.

Chapter Two/ JEMAL S 14