Job Order Costing

UNIVERSITY OF THE PHILIPPINES LOS BANOS

College of Economics and Management

Department of Agribusiness Management and Entrepreneurship

Graduate School

MGT 213

Job Order Costing vs. Process Costing

Prepared by: Mr. Sergs F. Sancon

FLOW OF COSTS IN A MANUFACTURING ENTERPRISE

Cost accounting neither adds new steps to the familiar accounting cycle nor discards the principles studied in

financial accounting. Cost accounting is concerned with recording and measuring cost elements as the related

resources flow through the productive process. The flow of costs parallels the flow of resources as illustrated

in Figure 2-1.

All manufacturing costs, regardless of their fixed or variable behavior, flow through the work in process and

finished goods inventory accounts.

Hel

CASH

DEPRECIABLE

ASSETS

ACCOUNTS PAYABLE

ACCRUALS

Pay

For

COST OF

MATERIALS

PURCHASE

D

MATERIALS

INVENTORY

Requisition to

WORK IN PROCESS

Direct materials

Direct labor

Applied factory overhead

Pay for or allocate

OTHER MANUFACTURING

COSTS

Direct labor

Factory overhead

Indirect labor

Indirect materials

Heat

Light

Power

Insurance

Depreciation

held in

COST OF

GOODS COMPLETED

move to

FINISHED

GOODS

INVENTORY

To

Figure 2 -1 Flow of Manufacturing Costs

COST OF

GOODS

SOLD

Page 2

PRACTICE PROBLEMS

P1

Cronic Manufacturing, Inc. uses a job order costing system. The company uses predetermined

overhead rates in applying manufacturing overhead to individual jobs. The predetermined overhead

rate in the Shoe Department is based on direct labor hours, the rate in the Sock Department is based

on machine hours, and the rate in Boxer Department is based on direct labor cost. At the beginning of

the most recent year, members of Cronic’s management team made the following estimates for the

year:

Department

Shoe

Sock

Boxers

Direct labor hours

40,000

26,000

20,000

Machine hours

50,000

18,000

30,000

Direct labor cost

$500,000

$250,000

$320,000

Direct materials

$65,000

$56,000

$32,000

Manufacturing overhead...