Chapter 5:

Job Order Costing

Cost Accounting:
Foundations & Evolutions, 8e
Kinney and Raiborn
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives

How do job order and process costing systems, as well as

their related valuation methods, differ?
What are the fundamental characteristics of a job order
costing system?
What are the primary documents supporting a job order
costing system and what purposes are served by each of
them?
How are costs accumulated in a job order costing system?
How are standard costs used in a job order costing
system?
How does information from a job order costing support
management decision making?
How are losses treated in a job order costing system?

2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Job Order or Process

Costing
Job Order

Small quantities
Batches of identifiable,
tailor-made products
User-specific services
Tracks costs by job

Process

Large quantities
Homogeneous goods
Tracks costs by batch of
goods by department

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Job Order Costing

A job is a single unit or group of units

identifiable as being produced to distinct
customer specifications
A job can be a

Client
Engagement
Project
Contract

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Methods of Product Costing

Cost Accumulation System defines

cost object
method of assigning costs to production

Valuation Method specifies

how product costs will be measured

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Six Possibilities
V
A
L
U
A
T
I
O
N

COST ACCUMULATION
SYSTEM
M
E
T
H
O
D

Job Order

Actual
Normal
Standard

Process

Actual
Normal
Standard

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Job Order Costing

System

Each job is a cost object

Costs are accumulated for each job
A job can consist of one or more units of
output
There is a subsidiary ledger for each job

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Job Order Costing

System
WIP Subsidiary Ledger
Job 1

100

Job 2

Job 3

200

500

Job 1 + Job 2 + Job 3

WIP Control
Job 1
Job 2
Job 3
Total

100
200
500
800

WIP Control

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Tracking

Material Requisition Form

Employee Time Sheet

Tracks who is responsible for materials

Verifies flow of materials from warehouse to department to job
Time worked on each job

Job Order Cost Sheet

All financial information about a job

direct material (from material requisition)

direct labor (from time sheets or labor tickets)
applied overhead
budgeted cost information

When job is complete, use job order cost sheet to analyze actual
costs compared to budgeted costs

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Job Order Costing and

Technology
Automate data collection and data entry
Accounting software includes job costing
modules
Share information using intranet

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Intranet
Restricted network for sharing
information and delivering data from
corporate databases to local-area
network (LAN) desktops

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Standard Cost System

Actual cost
Normal cost
Standard cost
Predetermined norms (or standards) for
materials, labor, and overhead
Compare actual costs to standard costs
difference is a variance

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Management Use of
Job Order Costing Systems

Estimate future job costs

Establish realistic bids and selling prices
Develop budgets and standards
Compare actual costs to estimated costs
Furnish performance evaluation
information based on profitability of jobs

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product and Material Losses

Shrinkage

Production errors

Evaporation
Leakage
Oxidation

Defects can be economically reworked

Spoilage cannot be economically reworked

Normal Lossexpected during production

Abnormal Lossexceeds what is expected during
production

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product and Material

Losses
Normal
Abnormal
Loss for
most jobs
Loss identified
with a
specific job

Loss

Loss

In overhead
rate

Period cost

Charge to
specific job

Period cost

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Questions
What is the difference between job
order and process costing systems?
How do actual, normal, and standard
costing valuation methods differ?
How is the job order cost sheet used?

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Potential Ethical Issues

Inflating costs assigned to cost-plus contracts

Assigning costs from a fixed-fee contract to a costplus contract
Substituting materials with inferior quality
Overstating costs included in Work in Process
Using methods or materials that violate intellectual
property rights of other firms
Recording sales value of defective work as Other
Revenue

2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.