Course Title:

Introduction To Costing Accounting Course Code: 3102

Submitted By:Md Parvez Khan

9th Batch ,B sectionRoll: B-130201189

Accounting and Information Systems.Jagannath University.

Submitted to:Mohammad Shofiqal Islam

Associated Professor, Dept. of AIS

Jagannath University.

Job Order Costing

Definition Of Job order costing Job order production and costing Process production and costing Calculating unit cost with job order costing The flow of costs through the accounts ABC and job order costing Applying overhead using functional approaches Difference between functional & activity based costing Overhead Variance Summary of Manufacturing Cost Flows Accounting for Nonmanufacturing cost

Learning Objectives

Job order costing system is generally used by companies that manufacture a number of different products. It is a widely used costing system in manufacturing as well as service industries. Manufacturing companies using job order costing system usually receive orders for customized products and services. These customized orders are known as jobs or batches.

Definition Of Job order costing

-A job order costing system accumulates manufacturing costs by job.- Such a system is used when separate jobs are identifiable ,such as a furniture manufacturer.-Unit costs in a job order system are calculated by dividing the total manufacturing cost of the job by the number of units produced in the job.

Job order production and costing

-A process costing system is used where similar or homogeneous units are mass produced ,such as the manufacture of paint or bricks. -in a process costing system , production costs are accumulated by process or by department for a given period of time -unit costs are calculated by dividing the processing department's costs by the output for the period.

Process production and costing

Job Order Costing Process Costing

1. wide variety of distinct products

1. Homogeneous products

2.costs accumulated by job 2.costs accumulated by process or department

3.unit cost is computed by dividing total job cost by the units produced.

3.unit cost is computed by dividing process costs of the period by the units produced in the period.

A comparison of Job order and process costing follows

**Using a normal costing system ,the total cost of a job is calculated using:-actual costs for direct metals - actual cost for direct labor -a predetermined rate to apply overhead**over head can be assigned using : -a single , units level activity driver -multiple activity drivers **a job order cost sheet is used to accumulate the manufacturing cost ( direct material , direct labor , and overhead ) associated with a job.

##The job order cost sheet are the subsidiary ledgers to the work in process account.

Calculating unit cost with job order costing

Accounting for material: The material account is used to account for : 1.Purchases of materials and supplies 2.issuance of materials to productionThe entry to record the purchase of material would be: Raw materials .....Debit Accounts payable ...... credit The entry to record the issuance of direct materials for use in production would be: Work in process......Debit Raw materials ...... Credit - Indirect material are included in manufacturing overhead and assigned to jobs using the pre determined overhead rate.

The flow of costs through the accounts

-Indirect labor costs are included in overhead and assigned to jobs using the predetermined overhead rate.The entry to record direct labor costs would be: Work in process..... Debit Wages payable...... credit -The job order cost sheets are updated to indicate the direct labor costs associated with each jobAccounting for over head : Overhead is applied to specific jobs using a predetermined overhead rate established at the beginning of the period.

Accounting for direct labor cost

-a budgeted cost for each activity pool-expected demand for the activity driver for each pool. example of activity drivers include direct labor hours , machine hours , purchase orders etc.Activity based rates are calculated as follows:-Activity based rate: Applied overhead rate are calculated as follows: -Applied overhead = activity base rate activity for jobThe summary entry to record total overhead applied would be: Work in process ...Debit Overhead control ....Credit -Overhead applied to specific jobs would be recorded on the job cost sheet for the particular job.

ABC and job order costing

-overhead can also applied using : -a plantwide rates -departmental rates The predetermined overhead rate is calculated as follows:- Predetermined overhead rate = .

Applying overhead using functional approaches

Overhead

Application.

Functional Approaches

One plantwideoverhead Rate

Departmental overhead Rates

Activity Based Costing

Activity Based Rates

Difference between functional & activity based costing are summarized

at the below….

Overhead Rates

One overhead rate using a unit level driver.

Different overhead rates for different department.

Multiple activity based overhead rates .

Example of Drivers

Direct labor hours -Machine hours -direct labor hours

-Machine hours -direct labor hours -purchase order -setups -material moves ,etc.

predetermined overhead rate

Applied overhead

predetermined overhead rate Activity for job

predetermined overhead rate Activity for job

Activity based rate Activity for job

-Actual overhead costs are recorded in the overhead control account.- Actual overhead costs inculded:1. indirect material 2.Indirect labor, overtime premium ,and idle time.The entry to record these costs would be: overhead control ……… Debit Accounts Payable …….. Credit

Overhead Variance The overhead variance is the difference between actual overhead and applied overhead.-under applied overhead results when applied overhead is less than actual overhead for the period .

Accounting for Actual Overhead Costs

Accounting for Finished goods:The entry to record the transfer would be: Finished Goods …….Debit Work in process ……. Credit

Accounting for Cost of goods Sold:The entry to record the transfer would be: Cost of goods Sold…… Debit Finished goods …… Credit

The entry to record the sales would be : Accounts Receivable …….. Debit

Sales revenue ………………… credit

COGS is an expense ,it appears on the company income

statement. Raw material ,WIP ,Finished Goods would appear in the

current assets section of the company balance sheet. WIP also appear in the schedule of cost of

manufactured ,while finished goods , would appear in the COGS section of the income statement.

Summary of Manufacturing Cost Flows

Raw material

IssuesPurchase

Wages Payable

Direct labor

Overhead control

Actual overhead

Applied overhead

WIP

Direct labor

Direct material

Applied overhead

Goods completed

Finished goods

Goods completed

Goods sold

COGS

Goods sold

Over Applied overhead

Selling & administrative costs are considered period costs and

are not assigned to the product. The entry to record selling and general administrative costs

would be: Selling Expense control …….. Debit

Administrative Expense control …. Debit Account Payable ………….. credit Wages Payable ………………. Credit Accumulated Dep.……………… credit

*** selling and administrative expense appear on the income statement.

Accounting for Nonmanufacturing

cost