Lesson Plan

Lecturer’s name: Qurat ul Ain Saboor Date: 30th April 2020

Course: Cost Accounting Duration: 3 hours

Topic: Chapter 3: Systems Design: Job‐Order Costing

Lesson objectives: Students will be able to…

 Distinguish between process costing and job‐order costing and identify
companies that would use each method.
 Identify the documents used in a job‐order costing system.
 Compute predetermined overhead rates and explain why estimated overhead
costs (rather than actual overhead costs) are used in the costing process.
 Apply overhead cost to jobs using a predetermined overhead rate.
 Determine under applied or over applied overhead.
 Use the direct method to determine cost of goods sold.

Summary of Lesson

C1 Describe important features of job order production.

Certain companies called job order manufacturers produce custom-made products for
customers. These customized products are produced in response to a customer’s
orders. A job order manufacturer produces products that usually are different and,
typically, produced in low volumes. The production systems of job order companies
are flexible and are not highly
standardized.

C2 Explain job cost sheets and how they are used in job order costing.

In a job order costing system, the costs of producing each job are accumulated on a
separate job cost sheet. Costs of direct materials, direct labor, and overhead applied
are accumulated separately on the job cost sheet and then added to determine the total
cost of a job. Job cost sheets for jobs in process, finished jobs, and jobs sold make up
subsidiary records controlled by general ledger accounts.

A1 Apply job order costing in pricing services.

Job order costing can usefully be applied to a service setting. The resulting job cost
estimate can then be used to help determine a price for services.

P1 Describe and record the flow of materials costs in job order costing.

Costs of direct materials flow to the Work in Process Inventory account and to job
cost sheets. Costs of indirect materials flow to the Factory Overhead account and to
the
factory overhead subsidiary ledger. Receiving reports evidence the purchase of raw
materials, and requisition forms evidence the use of materials in production.

P2 Describe and record the flow of labor costs in job order costing.

Costs of direct labor flow to the Work in Process Inventory account and to job cost
sheets. Costs of indirect labor flow to the Factory Overhead account and to the
factory overhead subsidiary ledger. Time tickets document the use of labor.
P3 Describe and record the flow of overhead costs in job order costing.

Overhead costs are charged to jobs using a predetermined overhead rate. Actual
overhead costs incurred are accumulated in the Factory Overhead account that
controls the subsidiary factory overhead ledger.

P4 Determine adjustments for overapplied and underapplied factory overhead.

At the end of each year, the Factory Overhead account usually has a residual debit
(underapplied overhead) or credit (overapplied overhead) balance. Assuming the
balance is not material, it is transferred to Cost of Goods Sold, and the Factory
Overhead account is closed.