Job-order costing traces and assigns costs to individual jobs, with costs recorded on job cost sheets. Process costing traces and assigns costs to production departments. Job-order costing is used when products are made to customer order, while process costing is used when similar products are continuously produced.
Water Industry Process Automation & Control Monthly - April 2024
Comparing Job-Order and Process Costing Systems
1. Comparing Job-Order and Process
Costing
Finished
Goods
Cost of
Goods
Sold
Work in
Process
Direct Materials
Direct Labour
Manufacturing
Overhead
LO 1
2. Comparing Job-Order and Process
Costing
Finished
Goods
Cost of
Goods
Sold
Direct Labour
Manufacturing
Overhead
Jobs
Costs are traced and
applied to individual
jobs in a job-order
cost system.
Direct Materials
LO 1
3. Comparing Job-Order and Process
Costing
Finished
Goods
Cost of
Goods
Sold
Direct Labour
Manufacturing
Overhead
Processing
Department
Costs are traced and
applied to departments in
a process cost system.
Direct Materials
LO 1
4. Basics of Job-Order Costing
Process
Costing
Job-Order
Costing
Many different products are produced each period.
Products are manufactured to order.
Costs are traced or allocated to jobs.
Cost records must be maintained for each distinct
product or job.
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5. Applications of
Job-Order Costing
Typical job order cost applications:
Special-order printing
Building construction
Also used in the service industry
Hospitals
Law firms
Job-Order
Costing
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6. Job No. 1
Job No. 2
Job No. 3
Charge
direct
material and
direct labor
costs to
each job as
work is
performed
Sequence of Events
in a Job-Order Costing System
Direct Materials
Direct Labor
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7. Apply
overhead to
each job
using the
predetermined
rate
(covered separately).
Sequence of Events
in a Job-Order Costing System
Direct Materials
Direct Labor
Job No. 1
Job No. 2
Job No. 3
Factory
Overhead
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8. Materials Requisition Form
Will E. Delite
Production managers use materials requisition forms to request
materials for manufacturing. This source document is used to
assign materials costs to specific jobs (or to overhead).
Total cost is
transferred to
job cost sheet
for job A-143
Type, quantity, and total cost of
material charged to job A-143.
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9. Employee Time Ticket
A worker uses a time ticket to record the time spent on each job
(or overhead activity). This source document determines
the amount of direct labor that is charged to a job (or
the amount of indirect labor that is charged to overhead).
Information is
transferred to
job cost sheet
for job A-143
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10. Job Cost Sheet –
Recording Materials and Labor
From the materials
requisition form
The primary document for tracking the costs associated
with a given job is the job order cost sheet.
From the
time ticket
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11. Assume that the company applies (or allocates) overhead
to jobs using a predetermined overhead rate of $4 per
direct labor hour.
Job Cost Sheet –
Recording Overhead
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12. Job-Order Costing –
Flow of Materials Costs
Materials
Requisition
Record in
Manufacturing
Overhead
Account
Direct
materials
Indirect
materials
Materials used
may be either
direct or
indirect.
Record on
each Job
Order Cost
Sheet and
add to Work
in Process
Account
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13. Job-Order Costing
Flow of Labor Costs
Employee Time
Ticket
Record in
Manufacturing
Overhead
Account
Direct
Labor
Indirect
Labor
An employee’s
time may be either
direct or indirect.
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Record on
each Job
Order Cost
Sheet and
add to Work
in Process
Account
14. Job-Order Costing
Document Flow Summary
Record in
Manufacturing
Overhead
Account
Other
Actual
Overhead
Charges
Applied
(or allocated)
Overhead
Materials
Requisition
Indirect
Material
Employee
Time Ticket
Indirect
Labor Record on
each Job
Order Cost
Sheet and
add to
Work in
Process
Account
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15. Entry to Record Cost Flows –
Material Purchases
Raw materials purchased are recorded
in an inventory account.
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16. Direct materials issued to a job
increase the Work in Process account and
decrease the Raw Materials account.
Indirect materials that are used in the factory
increase the Manufacturing Overhead account and
decrease the Raw Materials account.
Entry to Record Cost Flows –
Use of Materials
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17. Entry to Record Cost Flows –
Labor
The cost of direct labor incurred
increases the Work in Process account and
decreases the Salaries and Wages Payable account.
The cost of indirect labor incurred
increases the Manufacturing Overhead account and
decreases the Salaries and Wages Payable account.
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18. Entry to Record Cost Flows –
Application of Overhead
The Work in Process account is increased and the
Manufacturing Overhead account is decreased
when overhead is applied (or allocated) to jobs.
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19. Entry to Record Cost Flows –
Transfer to Finished Goods
As a job is completed, the cost of goods
that were completed for that job is transferred
from the Work in Process account
to the Finished Goods account.
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20. Entry to Record Cost Flows –
Sale of Job to Customer
When a job is sold to a customer on account:
(1) the sale is recorded; and
(2) the cost of the job is transferred
from the Finished Goods account
to the Cost of Goods Sold account.
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Notas del editor
The flow of costs through the manufacturing accounts is basically the same for process and job-order costing.
Direct materials, direct labour, and manufacturing overhead are added to Work in Process. When work in process is completed, the costs are transferred to Finished Goods. When finished goods are sold, the costs are transferred to Cost of Goods Sold.
There is a key fundamental difference between process and job-order costing systems. Job-order costing systems trace and apply manufacturing costs to jobs. One Work in Process account is often used to accumulate costs for all jobs. The individual job cost sheets serve as a subsidiary ledger.
In a process costing systems, costs are traced to departments that process the goods. In some companies there may be several processing departments that goods must pass through to become finished goods. A separate Work in Process account is maintained for each processing department. Material, labour, and overhead costs transferred from one department’s Work in Process account to another department’s Work in Process account are called transferred-in costs.