Similarities
- objectives (accumulating production costs, assigning costs to products)
- flow of costs
- use of factory overhead accounts (normal costing system)
Differences
- manufacturing environment
- cost object used for cost accumulation (departments not jobs as in job order costing)
- usually have multiple WIP accounts (includes transferred in costs included in product costs)
Example Job Order Costing Practice Problem:
A Business Card company, reported the following operations results for last period:
Direct material purchased $160,000
Direct material used 79,000
Direct labor charges 170,000
Manufacturing overhead incurred 100,000
Manufacturing overhead applied 90,000
During the year, products costing $310,000 were completed, and products costing $316,000 were sold for $455,000.
1. Prepare separate journal entries for each of the following based on this above information:
a. Purchase of raw materials on account.
b. Use of direct materials in production.
c. Direct labor charges.
d. Application of manufacturing overhead to production.
2. Compute gross profit as reported on the period’s income statement.
1a. RM Inventory Debit 160,000
Accounts Payable Credit 160,000
1b. WIP Debit 79,000
RM Inventory Credit 79,000
1c. WIP Debit 170,000
Wages Payable Credit 170,000
1d. WIP Debit 90,000
MOH Credit 90,000
2. MOH
100,000 90,000
COGS 10,000
MOH 10,000
Sales 455,000
Unadjusted COGS (316,000)
JE to close MOH (10,000)
Gross Profit 129,000
Additional Help:
Relationship between Variable and Absorption Costing
Applying Manufacturing Overhead
Variable Cost Ratio Percent Example
When to use Process Costing
External Links:
Introduction to Standard Costing
