CHAPTER 4

JOB ORDER COSTING

TOPIC OVERVIEW:
This chapter explains the job order cost method. This illustrates the necessary journal entries and
the documents to be accomplished under the said costing method.

LEARNING OBJECTIVES:
After studying this chapter, the students should be able to:
1. Define job order costing and identify the type of industries that would be most to use this
system.
2. Enumerate and explain the major source documents for job order costing.
3. Prepare job order cost sheets, stock cards, and cost of goods sold.

Job Order Costing

The job order cost procedure keeps the costs of various jobs or contracts (separate during their
manufacture or construction. The method is applicable to job order work in factories, workshops,
and repair shops as well as to work by builders, construction engineers, shipbuilders, and printers.
The cost unit is the job, the work order, or the contract, and the records will show the cost of each.
The method presupposes the possibility of physically identifying the jobs produced and of charging
each with its own cost.

In job order costing, each job is an accounting unit to which materials, labor, and factory overhead
costs are assigned by means of job order numbers. The cost of each order produced for a given
customer or the cost of each lot to be placed in stock is recorded on a summary sheet called a job
order cost sheet, or merely a cost sheet. This sheet is designed to collect the costs of materials,
labor, and factory overhead applicable to a specific job.

Major Source Documents for Job Order Costing

1. Job-Order Cost Sheet
 These records accumulated product costs of specific units or small batches of units for both
product costing and control purposes.
 The file of job-order sheets for uncompleted jobs serves as a perpetual book inventory and
the subsidiary ledger for Work in Process Control.
 A separate cost sheet is prepared for each job.

2. Materials Stock Card

 These records are the perpetual book inventory of costs and quantities of materials on hand.
 The file of materials stock cards for unused materials is the subsidiary ledger for Materials
Control.
 A separate stock card is prepared for each type of material on hand.

3. Finished Goods Stock Card

 These records are the perpetual book inventory of costs and quantities of completed goods
held for sale.
 The file of finished goods cards for unsold goods is the ledger of Finished Goods Control.

4. Factory Overhead Control Cost Record

 These records accumulate detailed manufacturing overhead costs by department.
 The file of these records for the accounting period is the subsidiary ledger for Factory
Overhead Control.
5. Materials Requisition, Time Ticket, and Clock Card
 These are the source documents for charging costs to jobs and departments.
 These are used to aid in fixing responsibility for control and usage of materials and labor.

JOB ORDER COST SHEET

STOCK CARD
Description _____________________ Location in Storeroom ________
Maximum ______ Minimum _______ Stores Ledger Account No. ____
Date Received Issued Balance
Unit Unit Unit
Qty. Amt. Qty. Amt. Qty. Amt.
Price Price Price

ILLUSTRATIVE PROBLEM
AA Company has the following balances as of January 1, 20x1.

Materials ₱ 4,900
Work in Process 4,600
Finished Goods (2,000 units of X at ₱3.00 6,000
each)
Accrued Factory Payroll 200

Materials
Material A – 600 units at ₱5.00 each ₱ 3,000
Material B – 350 units at ₱4.00 each 1,400
Indirect Materials 500
₱ 4,900

Work in Process – Job 101

Material A – 200 units at ₱5.00 each ₱ 1,000
Material B – 175 units at ₱4.00 each 700
Direct Labor – 290 hours at ₱5.00/hour 1,450
Factory Overhead – 100% of direct labor cost 1,450
 ₱ 4,600
The transactions for the month of January were as follows:
1. Purchases for the month of January - Material A - 600 units at ₱5.50; Material B - 800 units at
₱5.00; Indirect materials - ₱700.

2. Materials requisitioned and issued on a FIFO basis amounted to ₱7,000. Material A, 200 units
(charged to Job 101); Material A, 600 units and Material B, 225 units (charged to Job 102);
Material B, 425 units (charged to Job 103). Indirect materials amounted to ₱1,000.

3. Returned Material B to vendors, 70 units at ₱5.00

4. Payroll during January amounted to ₱10,300, of which ₱2,000 is for Job 101; ₱4,000 is for Job
102; ₱2,000 for Job 103, and ₱2,300 is indirect labor. Deductions are as follows

SSS Premiums ₱412

Medicare Contributions 225
Withholding taxes 1,050

5. Factory overhead is applied on the basis of 100% of direct labor cost.

6. Jobs completed during the month:

 Job 101 - 3,000 units of Commodity X, and
 Job 102 - 5,000 units of Commodity Y

7. Sales during January on FIFO basis:

 4,000 units of Commodity X at ₱6.00 per unit, and
 4,000 units of Commodity Y at ₱4.00 per unit.

8. Cash collection from customers, ₱35,000.

9. Recorded the following liabilities: Factory overhead, ₱4,800; Selling expenses, ₱2,100; General
expenses, ₱1,500.

10. Paid accounts payable, ₱9,500 and payroll, ₱8,500.

Requirements:
a) Record the necessary journal entries for the transactions above.
b) Prepare job order cost sheets.
c) Prepare stock cards for materials and finished goods.
d) Prepare the cost of goods sold statement for the month of January.

a.) Journal entries

1.
Materials 8,000
Accounts Payable 8,000

2.
Work in Process 7,000
Factory Overhead Control 1,000
Materials 8,000

3.
Accounts Payable 350
 Materials 350
4.
Payroll 10,300
SSS Premium Payable 412
Medicare Contributions Payable 225
Withholding Taxes Payable 1,050
Salaries and Wages Payable 8,613

Work in Process 8,000

Factory Overhead Control 2,300
Payroll 10,300

5.
Work in Process 8,000
Factory Overhead Applied 8,000

6.
Finished Goods 21,000
Work in Process 21,000

Job 101 Job 102

Direct Materials ₱ 2,700 ₱ 4,000
Direct Labor 3,450 4,000
Overhead 3,450 4,000
₱ 9,600 ₱ 12,000
7.
Accounts Receivable 40,000*
Sales 40,000
*4,000 x ₱6 = ₱24,000 ; 4,000 x ₱4 = ₱16,000
24,000 + 16,000 = 40,000

Cost of Goods Sold 22,000*

Finished Goods 22,000
*
Job 101
From Finished Goods, beg 2,000 units x ₱3 = ₱6,000
From Completed during the period 2,000 units x ₱3.2** = ₱6,400
Job 102
From Completed during the period 4,000 units x ₱2.4*** = ₱9,600
**₱9,600 / 3,000 units
*** ₱12,000 / 5,000 units

8.
Cash 35,000
Accounts Receivable 35,000

9.
Factory Overhead Control 4,800
Selling Expenses 2,100
General Expenses 1,500
Accounts Payable 8,400

10.
Accounts Payable 9,500
Salaries and Wages Payable 8,500
Cash 18,000
b. Job Order Cost Sheets
JOB 101
Materials Labor Overhead
1/1 1/1 1/1
Material A – 200 units ₱ 1,000 ₱ 1,450 ₱ 1,450
at ₱5.00 each
Material B – 175 units 700
at ₱4.00 each

2. 4. 5.
Material A, 200 units 1,000 2,000 2,000
at ₱5.00 each
₱ 2,700 ₱ 3,450 ₱ 3,450

JOB 102
Materials Labor Overhead
1/1 1/1 1/1
Material A ₱ 4,000 ₱ 4,000
400 units at ₱5.00 each ₱ 2,000
200 units at ₱5.50 each 1,100
Material B – 225 units 900
at ₱4.00 each

₱ 4,000 ₱ 4,000 ₱ 4,000

JOB 103
Materials Labor Overhead
1/1 1/1 1/1
Material B ₱ 2,000 ₱ 2,000
125 units at ₱4.00 each ₱ 500
300 units at ₱5.00 each 1,500

c. Stock Cards
MATERIAL A
Received Issued Balance
Unit Unit Unit
Qty. Amt. Qty. Amt. Qty. Amt.
Price Price Price
600 5.00 3,000
600 5.50 3,300 600 5.00 3,000
600 5.50 3,300

600 5.00 3,000

200 5.50 1,100 400 5.50 2,200
 MATERIAL B
Received Issued Balance
Unit Unit Unit
Qty. Amt. Qty. Amt. Qty. Amt.
Price Price Price
350 4.00 1,400
800 5.00 4,000 350 4.00 1,400
800 5.00 4,000

350 4.00 1,400

300 5.00 1,500 500 5.00 2,500

(70) 5.00 (350) 430 5.00 2,150

INDIRECT MATERIALS
Received Issued Balance
Unit Unit Unit
Qty. Amt. Qty. Amt. Qty. Amt.
Price Price Price
500
700 1200
1,000 200

X
Completed Sold Balance
Unit Unit Unit
Qty. Amt. Qty. Amt. Qty. Amt.
Price Price Price
2,000 3.00 6,000
3,000 3.20 9,600 2,000 3.00 6,000
3,000 3.20 9,600

2,000 3.00 6,000

2,000 3.20 6,400 1,000 3.20 3,200

Y
Completed Sold Balance
Unit Unit Unit
Qty. Amt. Qty. Amt. Qty. Amt.
Price Price Price
5,000 2.40 12,000 5,000 2.40 12,000
4,000 2.40 9,600 1,000 2.40 2,400
d. Cost of Goods Sold

AA Company
Cost of Goods Sold
For the Month Ended January 31, 20x1

Direct Materials
Materials Inventory, Jan 1 ₱ 4,900
Net Purchases 7,650
Total Materials Available 12,550
Less: Materials Inventory, Jan 31 4,550
Total Materials Used 8,000
Less: Indirect Materials Used 1,000
Direct Materials Used ₱ 7,000
Direct Labor 8,000
Manufacturing Overhead Applied 8,000
Total Manufacturing Cost 23,000
Add: Work in Process Inventory, Jan 1 4,600
Total Costs of Goods Placed in Process 27,600
Less: Work in Process Inventory, Jan 31 6,000
Cost of Goods Manufactured 21,600
Add: Finished Goods Inventory, Jan 1 6,000
Cost of Goods Available for Sale 27,600
Less: Finished Goods Inventory, Jan 31 5,600
Cost of Goods Sold - normal 22,000
Add: Underapplied factory overhead 100
Cost of Goods Sold - actual ₱ 22,100

References:
De Leon, Norma, E. D. (2019). Cost Accounting and Control. Manila: GIC Enterprises & Co.,
Inc.

Guerrero, P. (2018) Cost Accounting Principles and Procedural Application, Manila, Philippines:
GIC Enterprises and Co., Inc.