ACC2232 - Job Order Costing

Job costing

by Steven Bragg (www.accountingtools.com)

1. 

Job costing involves the accumulation of the costs of materials, labor, and overhead for a specific job. This approach is an excellent tool for tracing specific costs to individual jobs and examining them to see if the costs can be reduced in later jobs. An alternative use is to see if any excess costs incurred can be billed to a customer.

Job costing is used to accumulate costs at a small-unit level. For example, job costing is appropriate for deriving the cost of constructing a custom machine, designing a software program, constructing a building, or manufacturing a small batch of products.

Job costing involves the following accounting activities:

• Materials. It accumulates the cost of components and then assigns these costs to a product or project once the components are used.
• Labor. Employees charge their time to specific jobs, which are then assigned to the jobs based on the labor cost of the employees.
• Overhead. It accumulates overhead costs in cost pools, and then allocates these costs to jobs.

Sample of Job cost sheet

Example:

Forge Machine Works collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are available:

Direct Materials			Direct Labor
9/14 Issued	$ 1,200	Week of Sep. 20	180 hrs @ $6.20/hr
9/20 Issued	662	Week of Sep. 26	140 hrs @ $7.30/hr
9/22 Issued	480
Factory overhead applied at the rate of $3.50 per direct labor hour. Required: The appropriate information on a job cost sheet. The sales price of the job, assuming that it was contracted with a markup of 40% of cost.

Solution:

1.

Forge Machine Works Job Order Cost Sheet–Job 642
Direct materials		Direct labor				Applied factory overhead
Date Issued	Amount	Date (Week of)	Hours	Rate	Cost	Date (Week of)	Hours	Rate	Cost
9/14	$1,200	9/20	180	$6.20	$1,116	9/20	180	$3.50	$630
9/20	662	9/26	140	7.30	1,022	9/26	140	3.50	490
9/22	480
——–	———-	———-
$2,342 =====	$2,138 ======	$1,120 ======

2.

Sales Price of job 642, contracted with a markup of 40% of cost:

Direct materials	$2,342
Direct labor	2,138
Applied factory overhead	1,120
Total factory cost	$5,600
Markup 40% of cost	2,240
——-
$7,840 =====

For some other exercises, please look into these file.....

Ch_009_AIA_5e