Problem 1: Job Order Costing Cycle

Excellent Ltd. had the following inventories on 1 April 2019:

Raw Materials 50,000
Finished Goods 28,000
WIP – Materials 2,000
WIP – Labor 30,000
WIP – FOH 12,000

During the month, the cost of materials purchased was $120,000. Also, the direct labor cost was $160,000 and factory overhead applicable to production was $60,000. On 30 April, the inventories were as follows:

Raw Materials 46,000
Finished Goods 44,000
WIP – Materials 10,000
WIP – Labor 18,000
WIP – FOH 8,000

Required: Prepare journal entries on April 30 to show the flow of cost through the proper summary accounts, and also give the subsidiary records.


Job Order Costing Cycle

Job Order Costing Cycle Problem 1 Solution

Calculations Explained

Raw Materials Consumed

Opening Inventory 50,000
+ Purchases 1,20,000
Materials Available For Use 1,70,000
– Ending Inventory 46,000
Materials Used 1,24,000

W.I.P. Material

W.I.P. Material

W.I.P Labor

W.I.P. Labor



Finished Goods

W.I.P. Finished Goods

Problem 2: Charging Actual FOH to Jobs

The Moon Manufacturing Co. has a partial job order costing system instead of predetermining a factory overhead rate.

The company computes a separate factory overhead rate at the end of each month. This rate is used to charge the factory overhead to the jobs worked on during the month. The number of direct labor hours used on the jobs is the basis of such allocation.

The table below shows the actual factory overhead costs and the direct labor hours for May and June.

May June
Actual Factory Overhead Costs $6,000 $12,000
Actual Direct Labor Hours 15,000 hrs. 20,000 hrs.

During this two-month period, one customer sent in an identical order each month, calling for the production of 1,000 units. This required 400 direct laor hours at $1 per hour and materials amounting to $750.


  1. Calculate the total cost and unit cost for the job across the two months
  2. Comment on the method of charging actual factory overhead costs to jobs


Computing Actual FOH to Jobs

It is clear from the above calculation that charging actual FOH costs to jobs gives inaccurate and misleading results. The company should use predetermined FOH rates for correct calculations and control.

Calculations Explained
FOH Calculation

Problem 3: Journal Entries For Cost Cycle

John Manufacturing Company has a job order costing system. It compiled the following data for 2019.

Material and Supplies Purchased 242,000
Direct Material Used 190,000
Supplies Used 20,000
Direct Labor 150,000
Other Labor 35,000
Utility Cost for the Year 65,000
Miscellaneous Overhead 40,000
Depreciation Equipment 22,000
Applied Factory Overhead (20% of direct labor costs)
Cost of Goods completed (materials, $170,000; labor, $130,000) 3,26,000
Sales 5,00,000
Selling and Administrative Expenses 1,10,000


  • Prepare the appropriate journal entries
  • Calculate the net income


Journal Entries

Journal Entries for Job Order Costing Cycle
Net Income

Sales 500,000
– Cost of Sales 326,000
GP 174,000
– Selling & Administrative Expenses 110,000
Net Income 64,000

Frequently Asked Questions

What is job order costing?

Job order costing is a special type of process costing system. Under this system, costs are assigned to jobs based on the number of direct labor hours required to manufacture each job. Costs are accumulated for each different job during the production process.

What are the major problems of a job order costing?

First, is the difficulty to estimate the cost of jobs when changes are made frequently in job specifications, the estimations can be done by appropriate formulae but if estimates vary frequently it will affect the accuracy of the calculation, etc.

What is the most common mistake when preparing a job order sheet?

The most common mistake when preparing a job order sheet is the use of the wrong job order number.

Why is a job order sheet important?

Because once the calculation is done, we will be able to determine how much we spend on each product we produce. This analysis allows us to see if we are making a profit or loss for every product we sell which helps us determine what price point should be set for our products

What is the disadvantage of job order costing?

The problem with job order costing is that it can get very costly because it assigns product costs using a more complex allocation system, usually requiring more detailed data for each job.

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