4.5 Compute the Cost of a Job Using Job Order Costing
3 min read•june 18, 2024
tracks costs for unique products or services. It's crucial for businesses that make custom items or handle specific projects. This method helps managers understand the true cost of each job and set appropriate prices.
The process involves calculating , , and for each job. Costs are tracked through work-in-process, finished goods, and stages. Job cost sheets are used to record and summarize all costs associated with a specific job.
Job Order Costing
Calculation of total job cost
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2.1 Characteristics of Job Order Costing | Managerial Accounting View original
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- Raw materials directly traceable to a specific job (wood, steel, fabric)
- Cost of direct materials added to the
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- Labor costs directly traceable to a specific job (wages of assembly line workers, machine operators)
- Cost of direct labor added to the
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- Indirect costs that cannot be directly traced to a specific job (factory rent, utilities, depreciation, indirect labor)
- Overhead allocated to jobs using a
- calculated as
- Common allocation bases include direct labor hours, machine hours, direct labor costs
- calculated by multiplying predetermined overhead rate by actual quantity of
- Total job cost calculated by summing direct materials, direct labor, and allocated overhead
Job cost tracking stages
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- Costs of incomplete jobs at the end of an accounting period
- Includes direct materials, direct labor, and allocated overhead incurred for unfinished jobs
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- Costs of completed jobs that have not yet been sold
- When a job is completed, its costs transferred from work-in-process to
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- Costs of completed jobs that have been sold to customers
- When a finished good is sold, its cost transferred from finished goods inventory to cost of goods sold
Job cost sheet preparation
- Job cost sheet (also known as )
- Document used to track the costs associated with a specific job
- Includes sections for direct materials, direct labor, and overhead
- Direct materials section
- Records the cost of direct materials used for the job
- Information obtained from
- Direct labor section
- Records the cost of direct labor used for the job
- Information obtained from or time sheets
- Overhead section
- Records the allocated overhead for the job
- Calculated using the predetermined overhead rate and the actual quantity of the allocation base used for the job
- Summary section
- Totals the direct materials, direct labor, and allocated overhead to determine the total cost of the job
Cost Accumulation and Job Costing Systems
- : The process of collecting and organizing cost data for (such as jobs or products)
- : Used to track costs for individual jobs or batches of unique products
- : Factors that cause changes in costs, used to allocate overhead to jobs
- : The process of assigning manufacturing overhead costs to individual jobs
- : The movement of costs through the manufacturing process, from raw materials to work-in-process to finished goods
Key Terms to Review (29)
Allocated Overhead: Allocated overhead refers to the indirect costs associated with the production of goods or services that are distributed or assigned to individual jobs, products, or cost centers based on a predetermined allocation method. It is a crucial component in determining the full cost of a product or service within a job order costing system.
Allocation Base: The allocation base is the measure used to distribute or allocate overhead costs to individual products or jobs in a cost accounting system. It serves as the basis for assigning indirect costs to cost objects in a fair and systematic manner.
Cost Accumulation: Cost accumulation is the process of collecting and organizing costs associated with a specific cost object, such as a product, service, or job, in order to determine the total cost of that object. This term is particularly relevant in the context of job order costing and process costing, where costs are tracked and assigned to individual jobs or production processes.
Cost Drivers: Cost drivers are the factors that directly influence the incurrence of costs within an organization. They are the underlying causes that determine the level of resources consumed and the resulting costs associated with business activities or operations. Cost drivers play a crucial role in various managerial accounting concepts, including the estimation of variable and fixed costs, the application of job order and process costing methods, the calculation of activity-based product costs, and the analysis of overhead variances.
Cost Flows: Cost flows refer to the movement of costs through the different inventory accounts in an accounting system. It is a fundamental concept in cost accounting that describes how the costs of materials, labor, and overhead are tracked and allocated to products or services as they move through the production process.
Cost Objects: Cost objects are the items or activities for which costs are measured and assigned. They serve as the focal point for the accumulation and assignment of costs within an organization, enabling managers to understand the costs associated with specific products, services, or operations.
Cost of goods sold: Cost of Goods Sold (COGS) represents the direct costs attributable to the production of goods sold by a company. This amount includes the cost of materials and labor directly used to create the product.
Cost of Goods Sold: Cost of Goods Sold (COGS) represents the direct costs associated with the production or acquisition of the goods or services sold by a business during a specific accounting period. It is a fundamental concept in managerial accounting that helps organizations track and manage their inventory and profitability.
Direct labor: Direct labor refers to the wages and salaries of employees who are directly involved in the production of goods or services. This cost is directly traceable to specific products or jobs within a manufacturing environment.
Direct Labor: Direct labor refers to the cost of the workforce directly involved in the production of goods or the provision of services. It encompasses the wages and salaries paid to employees who physically transform raw materials into finished products or perform tasks that are essential to the completion of a service.
Direct materials: Direct materials are raw materials that can be directly traced to the production of a specific product. These materials are essential components in manufacturing and are included in the cost of goods sold.
Direct Materials: Direct materials are the raw materials that can be directly traced to the production of a specific product. They are a key component of product costs, along with direct labor and manufacturing overhead, and are a crucial element in understanding the differences between merchandising, manufacturing, and service organizations, as well as the various costing methods used in managerial accounting.
Employee Time Tickets: Employee time tickets are records that document the time an employee spends working on a specific job or task within a job order costing system. These tickets provide the necessary information to accurately calculate the labor cost component of a job's total cost.
Finished goods inventory: Finished goods inventory consists of products that have completed the manufacturing process but have not yet been sold to customers. These goods are ready for sale and are accounted for as an asset on the balance sheet.
Finished Goods Inventory: Finished goods inventory refers to the completed products that are ready for sale to customers in a manufacturing organization. It represents the final stage of the production process, where the manufactured goods are held in storage awaiting distribution and sale.
Job Cost Cards: Job Cost Cards are detailed records used in job order costing systems to track the costs associated with a specific job or project. These cards serve as the primary source of information for determining the total cost of a job, which is essential for pricing decisions and profitability analysis.
Job cost sheet: A job cost sheet is a document that records and accumulates all the costs assigned to a specific job in job order costing. It includes direct materials, direct labor, and manufacturing overhead costs.
Job Cost Sheet: A job cost sheet is a detailed record that tracks and accumulates the direct materials, direct labor, and manufacturing overhead costs associated with a specific job or production order in a job order costing system. It serves as a key document for determining the total cost of a job and the cost of goods manufactured.
Job Costing Systems: Job costing systems are a method of cost accounting used to determine the total cost of a specific product or service. These systems track and accumulate costs associated with the production of individual jobs or batches, rather than the overall production process.
Job order cost system: A job order cost system is a method of assigning and tracking manufacturing costs to individual jobs or batches. It is commonly used when products are customized or produced in small quantities.
Job order costing: Job order costing is a costing method used to allocate costs to specific jobs or orders, often for products that are distinctly different from each other. It tracks direct materials, direct labor, and manufacturing overhead costs for each job individually.
Job Order Costing: Job order costing is an accounting method used to track and accumulate the costs associated with the production of specific, distinct products or services. It focuses on tracing the direct costs of materials, labor, and overhead to individual jobs or batches of products rather than to the overall production process.
Manufacturing overhead: Manufacturing overhead includes all indirect costs associated with the production process, such as utilities, maintenance, and factory supplies. It does not include direct materials or direct labor costs.
Manufacturing Overhead: Manufacturing overhead refers to the indirect costs associated with the production of goods in a manufacturing organization. These are the costs that cannot be directly traced to a specific product but are necessary for the overall manufacturing process. Manufacturing overhead encompasses a wide range of expenses, including indirect materials, indirect labor, and other factory-related costs.
Materials Requisition Forms: Materials requisition forms are documents used in job order costing to track the flow of direct materials from the storeroom to a specific job or production order. They serve as a record of the materials consumed during the manufacturing process, allowing for accurate cost accounting and inventory management.
Overhead Application: Overhead application refers to the process of assigning indirect costs, or overhead, to individual products or jobs within a manufacturing or service environment. This term is crucial in the context of job order costing, journal entries for a job order cost system, and calculating predetermined overhead and total cost under the traditional allocation method.
Predetermined overhead rate: The predetermined overhead rate is a calculation used to allocate estimated manufacturing overhead costs to products or job orders, based on a specific activity base, such as direct labor hours or machine hours. It is determined before the period begins and helps in budgeting and costing processes.
Predetermined Overhead Rate: The predetermined overhead rate is a method used in job order costing to apply overhead costs to individual jobs or products. It is calculated by dividing the estimated total overhead costs for a period by the estimated activity base, such as direct labor hours or machine hours, for that same period. This rate is then used to apply overhead to each job based on the job's actual usage of the activity base.
Work-in-Process Inventory: Work-in-process inventory refers to the partially completed goods that are currently in the manufacturing process, awaiting further processing before becoming finished products. It represents the costs incurred for materials, labor, and overhead associated with goods that are not yet ready for sale.