Job Order Costing Questions and Answers:
Cost accounting is said to consist of
three different phases. Name them.
- Name four control accounts concerned
primarily with cost determination.
- What subsidiary record or ledger supports
each of the control accounts mentioned in answering Question 2?
- What is the primary objective in
- What is the rational supporting the use of
costing system for product
- What is a cost sheet?
- How is control over
prime costs achieved
- What is the function of
work in process
(WIP) account in job order costing system?
- What is factory overhead?
- Explain briefly: (a) actual factory
overhead (b) applied factory overhead.
- When a sale is made, an asset is debited
and sale is credited. If a cost system, including perpetual inventory
accounts, is used, what additional entry is required for this transaction?
- Select the answer which best completes the
(a) Of the following production operations, the one most likely to
employ job order cost accumulation is: (1) soft drink manufacturing; (2)
shipbuilding; (3) crude oil refining; (4) candy manufacturing.
(b) Under job order cost accumulation, the dollar amount of the
entry involved in the transfer of inventory from
work in process
finished goods is the sum of the costs charged to all jobs: (1) started in
process during the period; (2) in process during the period; (3) completed
and sold during the period; (4) completed during the period.
The three phases of cost accounting (managerial accounting) are: cost
determination; cost planning and control through budgets and standards;
and cost analysis for decision making.
Four control accounts concerned primarily with cost determination are:
materials; factory overhead; work in process and finished goods.
Materials--materials ledger cards or other forms of perpetual inventory.
Factory overhead control--expense ledger and departmental expense analysis
sheet. Work in process (WIP)--cost sheets or cost of production reports.
Finished goods--finished goods ledger cards.
The primary objective in job order costing is to determine the cost of
materials, labor, and factory overhead used to produce a specific
order or contract. Cost estimates are made when the order is taken, and
the job order procedures are designed to reveal costs as the order goes
through production, thereby giving an opportunity to control costs.
The type of cost accumulation method used by a company will be determined
by the type of manufacturing operation performed. A manufacturing
company should use process cost accumulation for product costing purposes
when like units are continuously mass production, when custom made or
unique goods are produced, job order costing would be more appropriate.
Process costing is often used in industries such as chemicals, food
processing, oil, mining, rubber and clerical appliances. With a continuous
mass production of like units, the center of attention is the individual
process (usually a department). The unit costs by cost category as well as
total unit cost for each process (department) are necessary for product
A cost sheet is a convenient printed form for collecting classifying and
summarizing the costs incident to a particular job, lot, or contract.
In essence, it is a statement of profit or loss for each job, prepared as
the work progresses, and is therefore a guide to management in controlling
Job order cost
sheet serve a control function. Comparisons are made between estimates
of a job costs and costs actually accumulated for the job. In addition,
cost control is enhanced by accumulating
direct materials and labor as
well as factory overhead costs by cost centers or departments, and by
comparing the actual costs to cost center budgets.
The work in process account is a control account in the general ledger,
reflecting total costs assigned or applied to jobs. The individual job
cost sheets form the
work in process
(WIP) account's subsidiary ledger,
direct labor, and factory overhead
charged to job.
Factory overhead is all the production costs, other than direct materials
and direct labor, necessary to manufacture a product.
Actual factory overhead is the actually experienced used-up cost that
occurs during a specific time period. Applied factory overhead is an
estimated amount of overhead that is assigned to work done.
additional entry is:
Cost of goods sold ....... Dr
- (a) 2