Chapter 19 - Job Order Cost Accounting
Job Order Cost Accounting
Factory overhead is not identified with specific units (jobs) or batches (job lots).
Therefore, to assign costs, estimates of the relation between factory overhead cost
and job or job lot are necessary.
Also, since job order cost accounting is a perpetual
system, we need to estimate a predetermined overhead rate to compute (perpetual)
This estimated amount also helps job order companies determine
prices on a timely basis.
Several other factors (allocation bases) are possible and reasonable.
factors often include direct materials or machine hours.
The job order cost sheet captures information on cost and quantity of direct material
and direct labor, and on the amount of factory overhead applied to the respective job
or job lot.
Management and employees use this information to monitor costs during
production and to estimate total cost of production.
Each job is assigned a subsidiary ledger account.
This account serves as the
“posting account” (accumulates all increases and decreases) during production for
direct material, direct labor, and applied factory overhead.
The collection of job cost
sheets for all of the jobs in process make up a subsidiary ledger controlled by the
Goods in Process Inventory account in the general ledger.
When a job is finished, its job cost sheet is completed and moved from the file of jobs in
process to the file of finished jobs awaiting delivery to customers.
This latter file acts
as a subsidiary ledger controlled by the Finished Goods Inventory account.
way, management and employees can obtain the costs, direct and indirect,
associated with any job or job lot at any time.
A debit (increase) to Goods in Process Inventory for direct materials, a debit
(increase) to Factory Overhead for indirect materials, and a credit (decrease) to Raw
The materials requisition slip is designed to track the movement of materials from
raw materials to production.
It also serves as an internal control document because
without the slip the inventory department should not release inventory to production.
The clock card is used to record the number of hours each employee works and is
used to compute total payroll.
The time ticket is used to record how much time an
employee spends on each job.
Time tickets are also used to determine the amount of
overhead to charge to jobs when overhead is based on direct labor.