MGMT Acct Chapter 5

Managerial Accounting
Fourth Canadian Edition
Chapter 5
Job Costing
Copyright © 2021 Pearson Canada Inc.

Objective 1
Distinguish between job costing and process costing

Methods Used to Determine the Cost of
Manufacturing a Product
• Most manufacturers use one of two product costing
systems to find the cost of producing their products:
– Process costing
– Job costing
• The end goal : to find the cost of manufacturing one unit of

product.

Process Costing
• Large numbers of identical units
• Continuous and uniform production
• Total costs are averaged over all units
• Examples
– Paint manufacturers
– Oil refineries
– Cereal manufacturers

Job Costing
• Unique, custom products or small batches
• Total costs are accumulated by job
• Examples
– Car repair shop
– Custom home builders
– Advertising agencies

Differences Between Job Costing and
Process Costing
Job Costing Process Costing
Cost object: Job Process

Single units or small
batches with large
Outputs: difference between jobs Large quantities of identical units
Less averaging—costs are More averaging—costs are
averaged over the small averaged over the many identical
number of units in a job units that pass through the
Extent of averaging: (often 1 unit in a job) process

Identify Process or Job Costing
a. A manufacturer of fiberglass insulation
Process costing
b. A residential plumbing contractor
Job costing
c. A manufacturer of fiber optic cable
Process costing
d. A home based jewelry maker
Job costing
e. A hospital
Job costing

Objective 2
Understand the flow of production and how direct
materials and direct labour are traced to jobs

Flow of Inventory Through a
Manufacturing System
Exhibit 5-2

Production Schedule for the Month of
December
Production
Schedule
(partial)
For the Month
of December
Job Description Customer # Employee Scheduled Scheduled
# Start Date End Date
603 Gold crown 17 Dr. Waja 3 12/22 12/23
604 Sports mouthguard × 2 8 Dr. Joseph 1 12/22 12/24
605 Full upper denture 34 Dr. Clissold 5 12/23 12/24
606 Retainer 19 Dr. Mah 3 12/23 12/24
FACTORY CLOSED 12/25 12/31
FOR HOLIDAYS and
ANNUAL
MAINTENANCE

Bill of Materials
Job: 603___ Bill of Materials
Model: Gold crown, 3-6 Quantity: Single___
Date Item
Requisitioned Item Quantity Used
12/23 HL 5 2.3 g

Raw Materials Record Updated for
Materials Received and Used
Raw
Materials
Record
Item Description Minimum
No.: HL : dental Balance : 25
5____ gold____ g____
Received Used Balance
Job
Date g Cost Total Number g Cost Total g Cost Total
11-25 30 $60 $1,800 30 $60 $1,800
11-30 580 1.8 $60 $108 28.2 $60 $1,692
12-02 586 2.7 $60 $162 25.5 $60 $1,530
12-10 591 1.9 $60 $114 23.6 $60 $1,416

Job Cost Record (1 of 2)
Job Cost Record
Job Number: 603_____
Customer: Dr. Waja___________________________________________
Job Description: HL 5 dental gold crown 3-6________________________
Date Started: Dec. 22_____ Date Completed:_____
Manufacturing Cost Information: Cost Summary
Direct Materials
$
Direct Labour
$
Manufacturing Overhead $
Total Job Cost $
Number of Units ÷ 1 unit
Cost per Unit $

Tracing Direct Material Costs to a Job (1 of 3)
• A materials requisition is filled out each time production
needs some raw materials
Materials Requisition
Date: 12/22
Number: #7568
Job: 603
Date Description Quantity Unit Cost Amount
12/22 HL 5 dental gold 2.3 g $60 $138
Total ___$138

• The individual raw materials records are also updated as soon as the
materials are picked
Raw
Materials
Record
Item Description Minimum
No.: HL : dental Balance : 25
5____ gold____ g____
Received Used Balance

Job
Date g Cost Total Number g Cost Total g Cost Total
11-25 30 $60 $1,800 30 $60 $1,800
11-30 580 1.8 $60 $108 28.2 $60 $1,692
12-02 586 2.7 $60 $162 25.5 $60 $1,530
12-10 591 1.9 $60 $114 23.6 $60 $1,416
12-15 30 $60 $1,800 53.6 $60 $3,216
12-22 603 2.3 $60 $138 51.3 $60 $3,078

• The Direct Materials used on the job are updated in the Job Cost
Record Job Cost Record
Customer: 17 Dr. Waja___________________________________________
Job Description: 1 HL 5 dental gold crown________________________
Direct Materials
Req. #7568: 2.3 g HL 5 $ 138 $ 138
Direct Labour $
Total Job Cost $
Cost per Unit $

DM and DL in Job Cost Record
• The Job Cost Record is updated for Direct Labour Costs
Job Cost Record
Customer: 17 Dr. Waja___________________________________________
Job Description: 1 HL 5 dental gold crown________________________

Direct Materials
Req. #7568: 2.3 g HL 5 $ 138 $ 138
Direct Labour
No. #324 (9 hours): $160, $20, etc.
No. #327* (1 hour): $ 15
No. #333* (1.5 hours): $ 30
Etc.
(a total of 11.5 direct labour hours) $ 225
Total Job Cost $
Cost per Unit $

Objective 3
Compute a predetermined manufacturing overhead
(MOH) rate and use it to allocate MOH to jobs

Direct Labour and Materials Posted to Job Cost Record
Job Cost Record
Job Number: 603
Customer: For stock
Job Description: 50 units of X4 Elliptical Cross-Trainers
Date Started: Dec. 2_____ Date Completed: _________

Direct Materials $ 40,000
Req. #7568: $ 8,500
Req. #7580: $ 14,000
Req. # 7595: $ 13,500
Req. # 7601: $ 4,000
Direct Labour $ 10,000

No. #324 (30 hours): $ 600
No. #327 (40 hours): $ 800
No. #333 (36 hours): $ 720
Etc. (a total of 500 direct labour hours)
Total Job Cost $
Number of Units ÷ 50 units
Cost per Unit $

Allocating Manufacturing Overhead to a
Job
• Indirect costs, otherwise known as manufacturing
overhead
• Include depreciation on the factory plant and equipment,
utilities to run the plant, property taxes and insurance on
the plant, etc.
• IFRS and ASPE mandate that manufacturing overhead
must be treated as an inventoriable product cost
• Allocating manufacturing overhead to jobs:
– “Split up” or “divide” the total manufacturing overhead costs
among the jobs we produced during the period

Calculating and Allocating Predetermined
Manufacturing Overhead Rate
Four steps in implementing this basic allocation system:
1. Estimate total manufacturing overhead costs
2. Select an allocation base (cost driver)
3. Calculate predetermined manufacturing overhead rate
(POHR)
Total estimated manufacturing overhead costs
Predetermined MOH rate 
Total estimated amount of the allocation base
4. Allocate some MOH to individual jobs

MOH allocated to a job  Predetermined MOH rate  Actual amount of allocation base used by the job
*POHR stands for “Predetermined Manufacturing Overhead Rate”

Allocating MOH to Individual Job
Example:
Total estimated manufacturing overhead costs = $1,000,000
Cost allocation base is direct labour hours (DLH)
Total estimated DLH for the year = 62,500
Job #603 used 500 DLHs

$1,000,000
Predetermined MOH rate   $16 per direct labour hour
62,500 DL hours
MOH to be allocated to Job 603  $16 per direct labour hour  11.5 direct labour hours
 $184

Completing the Job Cost Record
Job Cost Record
Customer: 17 Dr.
Waja________________________________________________________________
Job Description: 1 HL 5 dental gold
crown________________________________________________
Date Started: Dec. 22_____ Date Completed: __Dec. 28___

Direct Materials
Req. #7568: 2.3 g HL 5 $ 138
$ 138
Direct Labour
No. #324 (9 hours): $160, $20, etc.
No. #327* (1 hour): $ 15
No. #333* (1.5 hours): $ 30
Etc.
(a total of 11.5 direct labour hours) $ 225
Manufacturing Overhead
$16/ DL hour × 11.5 DL hours = $185 $ 185

Total Job Cost $ 547
Cost per Unit Copyright © 2021 Pearson Canada Inc. $ 547
Objective 4
Compute and dispose of overallocated or underallocated
manufacturing overhead

Overhead Application (1 of 2)
• Managers calculate the cost of producing a job by tracing
actual direct materials and direct labour to each job using
materials requisitions and labour time records
• Manufacturing overhead is allocated to each job using a

predetermined overhead rate
• They will have either underallocated manufacturing

overhead (estimated too little) or overallocated
manufacturing overhead (estimated too much)

Overhead Application (2 of 2)
Exhibit 5-15

Overhead Application Example (1 of 3)
Shaw Group has the following actual manufacturing
overhead costs in December:
Manufacturing Overhead Incurred Actual MOH Costs

Indirect materials used (janitorial supplies, machine lubricants, etc.) $ 2,000
Indirect labour (janitors’ and supervisors’ wages, etc.) 13,000
Other indirect manufacturing costs
(Plant utilities, depreciation, property taxes, insurance, etc.) 10,000
Total actual manufacturing overhead costs incurred $25,000

Manufacturing overhead is allocated to jobs, based on the
predetermined overhead rate of $16 per DLH:
Job Amount of MOH Allocated to Job

603 (from Exhibit 5-14) ($16 per DL hour × 11.5 DL hours) $ 184
604 (not shown) ($16 per DL hour × 1,488.5 DL hours) 23,816
Total MOH allocated to jobs ($16 per hour × 1,500 DL hours) $24,000

Recall that the predetermined MOH rate was:
$1,000,000
Predetermined MOH rate   $16 per direct labour hour
62,500 DL hours
Total manufacturing overhead allocated to jobs is based on

1,500 ACTUAL DLH’s:
Total MOH allocated  Predetermined MOH rate  Actual total amount of allocation base used on all jobs
 $16 per DL hour  1,500 direct labour hours
 $24,000 total MOH allocated to jobs during the period
Actual manufacturing overhead costs incurred $25,000

Manufacturing overhead allocated to jobs 24,000
Underallocated manufacturing overhead $ 1,000

Underallocated or Overallocated
Manufacturing Overhead (1 of 4)
• Underallocated (actual is greater than allocated)
– not enough allocated to jobs
– too little charged to product cost
• Overallocated (actual is less than allocated)

– too much allocated to jobs
– too much charged to product cost

Underallocated or Overallocated
Manufacturing Overhead (2 of 4)
• Assuming that:
– The amount of under or overallocation is immaterial; or
– Most of the inventory produced during the period has been
sold
• Manufacturers will make adjustments, as required

Objective 6
Prepare journal entries for a manufacturer’s job costing
system

Quick Check

Quick Check Question (1 of 5)
1. Which of the following companies would be most likely to
use a job costing system rather than a process costing
system?
a. Steel manufacturer
b. Legal firm
c. Beverage bottler
d. Paint manufacturer

Quick Check Answer (1 of 5)
1. Which of the following companies would be most likely to
use a job costing system rather than a process costing
system?
a. Steel manufacturer
b. Legal firm
c. Beverage bottler
d. Paint manufacturer

2. In a job costing system, all of the following statements
about materials are correct EXCEPT for which of the
following?
a. A materials requisition is used to request materials needed
from the storeroom.
b. The job cost record for a job will contain all direct material
used for that particular job.
c. Materials that cannot be traced to a particular job are treated
as manufacturing overhead.
d. All materials are always classified as direct materials.

2. In a job costing system, all of the following statements
about materials are correct EXCEPT for which of the
following?
a. A materials requisition is used to request materials needed
from the storeroom.
b. The job cost record for a job will contain all direct material
used for that particular job.
c. Materials that cannot be traced to a particular job are treated
as manufacturing overhead.
d. All materials are always classified as direct materials.

3. The formula to calculate the amount of manufacturing
overhead to allocate to jobs is:
a. predetermined overhead rate times the actual amount of the
allocation base used by the specific job.
b. predetermined overhead rate divided by the actual allocation
base used by the specific job.
c. predetermined overhead rate times the actual manufacturing
overhead used on the specific job.
d. predetermined overhead rate times the estimated amount of
the allocation base used by the specific job.

3. The formula to calculate the amount of manufacturing
overhead to allocate to jobs is:
a. predetermined overhead rate times the actual amount of
b. predetermined overhead rate divided by the actual allocation
base used by the specific job.
c. predetermined overhead rate times the actual manufacturing
overhead used on the specific job.
d. predetermined overhead rate times the estimated amount of

4. If a company underestimates the amount of the allocation
base when calculating its predetermined manufacturing
overhead rate, but estimates the amount of manufacturing
overhead costs correctly, the amount of manufacturing
overhead allocated for the year likely will be:
a. underallocated.
b. overallocated.
c. exactly equal to the actual manufacturing overhead for the
year.
d. cannot be determined from the information given.

4. If a company underestimates the amount of the allocation
base when calculating its predetermined manufacturing
overhead rate, but estimates the amount of manufacturing
overhead costs correctly, the amount of manufacturing
overhead allocated for the year likely will be:
a. underallocated.
b. overallocated.
c. exactly equal to the actual manufacturing overhead for the
year.
d. cannot be determined from the information given.

5. If manufacturing overhead is overallocated for the period
by $200, then:
a. the $200 should be prorated between Work in Process
inventory, Raw Materials inventory, and Cost of Goods Sold.
b. actual manufacturing overhead is greater than allocated
manufacturing overhead.
c. jobs have been overcosted during the period.
d. Cost of Goods Sold should be adjusted by an increase of
$200.

5. If manufacturing overhead is overallocated for the period
by $200, then:
a. the $200 should be prorated between Work in Process
inventory, Raw Materials inventory, and Cost of Goods Sold.
b. actual manufacturing overhead is greater than allocated
manufacturing overhead.
c. jobs have been overcosted during the period.
d. Cost of Goods Sold should be adjusted by an increase of
$200.

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Managerial Accounting

Fourth Canadian Edition

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

• The end goal : to find the cost of manufacturing one unit of

Copyright © 2021 Pearson Canada Inc.

• Continuous and uniform production

• Total costs are averaged over all units

Copyright © 2021 Pearson Canada Inc.

• Total costs are accumulated by job

Copyright © 2021 Pearson Canada Inc.

Job Costing Process Costing

Cost object: Job Process

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

Model: Gold crown, 3-6 Quantity: Single___

Copyright © 2021 Pearson Canada Inc.

Received Used Balance

11-25 30 $60 $1,800 30 $60 $1,800

11-30 580 1.8 $60 $108 28.2 $60 $1,692

12-02 586 2.7 $60 $162 25.5 $60 $1,530

12-10 591 1.9 $60 $114 23.6 $60 $1,416

Copyright © 2021 Pearson Canada Inc.

Manufacturing Cost Information: Cost Summary

Copyright © 2021 Pearson Canada Inc.

Date Description Quantity Unit Cost Amount

12/22 HL 5 dental gold 2.3 g $60 $138

Copyright © 2021 Pearson Canada Inc.

Received Used Balance

Copyright © 2021 Pearson Canada Inc.

Manufacturing Cost Information: Cost Summary

Copyright © 2021 Pearson Canada Inc.

Manufacturing Cost Information: Cost Summary

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

Date Started: Dec. 2_____ Date Completed: _________

Direct Labour $ 10,000

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

4. Allocate some MOH to individual jobs

*POHR stands for “Predetermined Manufacturing Overhead Rate”

Copyright © 2021 Pearson Canada Inc.

Total estimated manufacturing overhead costs = $1,000,000

Cost allocation base is direct labour hours (DLH)

Total estimated DLH for the year = 62,500

Job #603 used 500 DLHs

Copyright © 2021 Pearson Canada Inc.

Manufacturing Cost Information: Cost Summary

$16/ DL hour × 11.5 DL hours = $185 $ 185

Copyright © 2021 Pearson Canada Inc.

• Manufacturing overhead is allocated to each job using a

• They will have either underallocated manufacturing

Copyright © 2021 Pearson Canada Inc.

Copyright © 2021 Pearson Canada Inc.

Manufacturing Overhead Incurred Actual MOH Costs

Copyright © 2021 Pearson Canada Inc.

Date Started: Dec. 2_ Date Completed: _____