JOB ORDER COSTING

• The journal entry to record the incurrence of rework costs

Cost Accounting Systems is provided as follows:
MOH (Rework costs) xxx
• Cost accounting involves the measuring, recording, and
Raw materials xxx
reporting of product costs. From the data accumulated,
Salaries payable xxx
companies determine both the total cost and the unit cost
MOH xxx
of each product.
• CASE 2: Charged to customer/ “exacting
• There are two basic types of cost accounting systems:
specification”/specific job
✓ A job order system where the company assigns
Total cost of goods xxxx
costs to each job or to each batch of goods.
Rework costs xxxx
✓ A process cost system used when a company
manufactures a large volume of similar products. Cost transferred to FG xxxx
Divide: Good units xxxx
Cost per unit xxxx
Job Order Cost Flow
• The flow of costs (direct materials, direct labor, and
• Note: Rework costs will be included in the costs
manufacturing overhead) in job order cost accounting
transferred to FG.
parallels the physical flow of the materials as they are
converted into finished goods.
• The journal entry to record the incurrence of rework costs
is provided as follows:
• There are two major steps in the flow of costs:
MOH (Rework costs) xxx
Raw materials xxx
✓ Accumulating the manufacturing costs incurred;
Salaries payable xxx
these costs are accumulated in three accounts:
MOH xxx
▪ Raw Materials Inventory
▪ Factory Labor
SPOILED GOODS
▪ Manufacturing Overhead
NRV of spoiled xxxx
✓ Assigning the accumulated costs to Work in Process
Cost of spoiled (xxxx)
Inventory (WIP) and eventually to Finished Goods
Loss xxxx
Inventory (FG) and Cost of Goods Sold (COGS).
Total units xxxx
• Three entries are made to accumulate the manufacturing
Spoiled units (xxxx)
costs incurred.
Good units xxxx
✓ When the company receives the raw materials it has
purchased, it debits the costs of the materials to Raw
Materials Inventory. • CASE 1: If the rework costs are charged to the entity/to all
production/internal failure.
✓ The cost of factory labor consists of gross earnings of Total Cost of Goods* xxxx
Cost of Spoiled (xxxx)
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factory workers, employer payroll taxes, and fringe
benefits (sick pay, pensions, and vacation pay) Cost transferred to FG xxxx
incurred by the employer. Divide: Good units xxxx
Cost per unit xxxx
✓ Companies debit labor costs to Factory Labor as they * include allowance to cost
incur those costs. Factory labor is assigned to Work in
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Process and manufacturing overhead at the end of the • Note: Loss will be charged to manufacturing overhead
period. (MOH) and will be an actual overhead (OH).

✓ A company may record overhead costs periodically • The journal entry to record the incurrence of loss is
through adjusting entries by debiting Manufacturing provided as follows:
Overhead. Manufacturing Overhead is a control account Spoiled goods (NRV) xxx
ct

and the subsidiary ledger consists of individual MOH (Loss) xxx

accounts for each type of cost (factory utilities, factory WIP xxx
repairs, etc.).
• CASE 2: Charged to customer/ “exacting
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DEFECTIVE GOODS specification”/specific job

• Components of rework cost: Total Cost of Goods xxxx
1. Direct material NRV of Spoiled (xxxx)
2. Direct labor Cost transferred to FG xxxx
3. Manufacturing overhead Divide: Good units xxxx
Cost per unit xxxx
• CASE 1: If the rework costs are charged to the entity/to all
production/internal failure.
Total cost of goods xxxx • Note: Loss will be included in the costs transferred to FG.
Divide: Good units* xxxx
Cost per unit xxxx • The journal entry to record the incurrence of loss is
provided as follows:
*Good units = Total units Spoiled goods (NRV) xxx
WIP xxx
• Note: Rework costs will be charged to manufacturing - - End - -
overhead (MOH) and will be an actual overhead (OH).
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 JOB-ORDER COSTING
THEORY

1. The two basic types of cost accounting systems are

a. Job order and job accumulation systems c. Process cost and batch systems
b. Job order and process cost systems d. Job order and batch systems

2. Two basic costing systems for assigning costs to products or services are job order and process costing.
These two costing systems are usually viewed as being on opposite ends of a spectrum. The fundamental
criterion employed to determine whether job costing or process costing should be employed is
a. Proportion of direct (traceable) costs expended to produce the product or service
b. Number of cost pools employed to allocate the indirect costs tot eh product or service
c. Type of bases used in allocating the indirect cost pools to the product or service
d. The nature and amount of the product or service brought to the marketplace for customer
consumption

3. Job order costing and process costing have which of the following characteristics?
Job Order Costing Process Costing
a. Homogeneous products Heterogeneous products
and large quantities and small quantities
b. Homogeneous products Heterogeneous products
and small quantities and large quantities
c. Heterogeneous products Homogeneous products
and large quantities and small quantities
d. Heterogeneous products Homogeneous products
and small quantities and large quantities

4. Which of the following would be accounted for using a job order cost system?
a. The production of personal computers c. The refining of petroleum
b. The production of automobiles d. The construction of a new campus building

5. In a job cost system, the application of factory overhead is usually reflected in the general ledger as an
increase in
a. Factory overhead control c. Work in process control
b. Finished goods control d. Cost of goods sold
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6. When a job is completed and all costs have been accumulated on a job cost sheet, the journal entry that
should be made is
a. Finished Goods Inventory c. Raw Materials Inventory
Direct Materials Work in Process Inventory
Direct Labor
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Manufacturing Overhead
b. Work In Process Inventory d. Finished Goods Inventory
Direct Materials Work in Process Inventory
Direct Labor
Manufacturing Overhead
ct

7. Spoiled units are

a. Units that cannot be economically reworked to bring them up to standard
b. Units that can be economically reworked to bring them up to standard
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c. The same as defective units

d. Considered abnormal losses

8. Normal spoilage is defined as unacceptable production that

a. Arises because of a special job or process c. Is caused specifically by human error
b. Occurs in on-going operations d. Is in excess of that which is expected

9. Abnormal spoilage is
a. Spoilage that is forecasted or planned c. Accounted for as a product cost
b. Spoilage that is in excess of planned d. Debited to Cost of Goods Sold

10. Which of the following statements concerning spoilage in a job-order costing is correct?
a. The cost of abnormal spoilage is recorded as period cost or expense

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 b. When normal spoilage occurs because of the specification of a particular job, cost of normal loss
shall be capitalized to that specific job reduced by the current disposal value/net realizable value of
the spoiled units
c. When normal spoilage is a characteristic of a given production cycle, the cost of normal loss is not
charged to a specific job but will be closed to manufacturing overhead control account
d. All of the above

11. Which of the following statements concerning rework costs in a job-order costing is correct?
a. If the normal rework cost is attributable to a specific job, it shall be capitalized to that particular job
b. If the normal rework cost is common to all jobs, it shall be debited to manufacturing overhead
control account
c. If the rework cost is abnormal, it shall be recorded as a period cost or expense
d. All of the above

12. When the amount of overapplied factory overhead is significant, the entry to close overapplied factory
overhead will most likely require
a. A debit to cost of goods sold
b. Debits to cost of goods sold, finished goods inventory, and work in process inventory
c. A credit to cost of goods sold
d. Credits to cost of goods sold, finished goods inventory and work in process inventory

PROBLEM
1. Selected cost data concerning the past fiscal year’s operations of the Krystelle Manufacturing Co. are
presented below:
Inventories
Beginning Ending
Materials P75,000 P85,000
Work in process 80,000 30,000
Finished goods 90,000 110,000

●Materials used, P326,000.

●Total manufacturing costs charged to production during the year (including direct materials, direct
labor, and factory overhead applied at the rate of 60% of direct labor cost), P686,000.
● Cost of goods available for sale, P826,000.
● Selling and general expenses, P25,000.
Question 1: What is the amount of direct materials purchased during the year?
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a. P360,000 c. P336,000
b. P316,000 d. P411,000

Question 2: What is the direct labor cost charged to production during the year?
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a. P216,000 c. P225,000
b. P135,000 d. P360,000

Question 3: What is the cost of goods manufactured during the year?

a. P736,000 c. P636,000
ct

b. P716,000 d. P766,000
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Question 4: What is the cost of goods sold during the year?

a. P716,000 c. P801,000
b. P691,000 d. P736,000

2. Judy Inc. is employing normal costing for its Job orders. The overhead is applied using a predetermined
overhead rate. The following information relates to the company for the year ended December 31, 2021:
Job No. 101 Job No. 102 Job No. 103
Job in Process, January 1, 2021:
Direct materials 40,000 30,000 0
Labor 60,000 40,000 0
Factory overhead 30,000 20,000 0
Costs added during 2021:
Materials 20,000 10,000 100,000
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 Labor 100,000 200,000 400,000
Factory overhead ? ? ?

Additional information:
● Actual overhead for the year 2020 amounted to P350,000
● Jobs No. 101 and 102 were completed and transferred to finished goods during year 2021
● Job No. 101 was sold during year 2021
● The gross profit rate is 20% based on cost
Question 1: What is the total manufacturing cost for 2021?
a. P1,400,000 c. P480,000
b. P1,180,000 d. P1,200,000

Question 2: What is the cost of goods manufactured for 2021?

a. P680,000 c. P580,000
b. P700,000 d. P780,000

Question 3: What is the cost of goods sold for 2021?

a. P1,180,000 c. P700,000
b. P300,000 d. P1,200,000

Question 4: What is the gross profit for 2021?

a. P236,000 c. P140,000
b. P60,000 d. P240,000

Question 5: What are the cost of work in process on December 31, 2021 and the cost of finished goods on
December 31, 2021, respectively?
a. P800,000 and P500,000 c. P600,000 and P300,000
b. P700,000 and P400,000 d. P900,000 and P200,000

3. Josephine Company uses a job order cost system. The following data were obtained from the company’s
cost records as of June 30. No jobs were in process at the beginning of June, all costs listed being incurred
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during the month.
Job Order No. Direct Materials Direct Labor Hours Direct Labor Cost
1001 P4,320 1,300 P1,600
1002 9,150 3,700 7,250
1003 11,275 8,200 14,325
20

1004 3,225 1,500 2,800

1005 6,500 3,200 6,100
1006 2,750 980 1,650

● Manufacturing overhead costs are charged to jobs based on P1.50 per direct labor hour.
● The actual manufacturing overhead cost for the month totaled P30,350.
ct

● During June, Job Order Nos. 1001, 1002, 1004 and 1005 were completed.
● Jobs 1001 and 1002 were shipped out and the customers were billed P9,000 for Job 1001 and
P20,000 for Job 1002.
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The cost of goods manufactured would be:

a. P55,500 c. P56,495
b. P55,495 d. P57,500

4. Alvin Co. has underapplied overhead of P45,000 for the year. Before disposition of underapplied overhead,
selected year-end balances from its accounting records were
Sales 1,200,000
Cost of goods sold 720,000
Direct materials inventory 36,000
Work in process inventory 54,000
Finished goods inventory 90,000

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 Under its cost accounting system, over or underapplied overhead is assigned to appropriate inventories and
cost of goods sold based on year-end balances. In its year-end income statement, the company should
report cost of goods sold of
a. P682,500 c. P757,500
b. P684,000 d. P765,000

5. At the end of the last fiscal year, Levlyn Co. had the following account balances:
Overapplied overhead 6,000
Cost of goods sold 980,000
Work in process 38,000
Finished goods 82,000
If the most common treatment of assigning overapplied overhead was used, the final balance in cost of
goods sold would have been
a. P985,340 c. P974,000
b. P974,660 d. P986,000

6. Dionalynne Company’s Job 007 manufactured 13,750 units that was completed in August at unit costs
presented as follows:
Direct materials P50
Direct labor 45
Factory overhead 45
Final inspection of Job 007 disclosed 1,250 spoiled units, which were sold for P37,500.

Compute the unit cost under the following independent cases:

Case 1: [Normal specific] The spoilage loss is attributable to exacting specifications of Job 007.

Case 2: [Normal common] The spoilage loss is attributable to all jobs.

Case 3: [Abnormal] The spoilage loss is treated as abnormal.

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7. During August 2021, Danna Inc. incurred the following costs for Job 007 (450 drum sets):
Direct materials P42,500
20

Direct labor P65,250

Factory overhead P78,300

45 units of drum sets were found to be defective and the company had to incur the following to remedy the
said defects:
Direct materials P13,550
ct

Direct Labor P15,250

Compute the unit cost under the following independent cases:

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Case 1: [Normal specific] The rework cost is attributable to exacting specifications of Job 007.

Case 2: [Normal common] The rework cost is attributable to all jobs.

Case 3: [Abnormal] The rework cost is treated as abnormal.

- - End - -
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