Job Order Costing: Examples, Practical Problems, and Solutions

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on August 27, 2021

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.

Solution

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

W.I.P. FOH

W.I.P. FOH

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.

Required:

  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

Solution

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

Required:

  • Prepare the appropriate journal entries
  • Calculate the net income

Solution

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
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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