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Summary FBS222 - Chapter 5 - Job-Order Costing
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Comprehensive summary of job-order costing (chapter 5), adapted from the book, Cornerstones of Managerial account. ISBN: 3542
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FBS 222 CHAPTER 5Job-Order Costing
CHARACTERISTICS OF THE JOB-ORDER
ENVIRONMENT
• Manufacturing and service firms producing unique (distinct from each other)
products or services require a job-order accounting system.
• While companies producing similar products or services can use a process-
costing accounting system.
JOB-ORDER PRODUCTION & COSTING
• A job is one distinct unit or set of units.
• Common job-order processes include:
o Printing
o Construction
o Furniture making
o Medical and dental services
o Motor repairs
o Beautician services
• The key feature of job-order costing is that the cost of one job differs from
that of another and must be kept track of separately.
• For job-order production systems, costs are accumulated by job (This assigning
cost is called a job-order costing system).
𝑇𝑜𝑡𝑎𝑙 𝑗𝑜𝑏 𝑐𝑜𝑠𝑡𝑠
Unit costs = 𝑂𝑢𝑡𝑝𝑢𝑡
PROCESS PRODUCTION & COSTING
• Firms in process industries mass-produce large quantities of similar or
homogenous products.
• Examples of process manufacturers include:
o Food canning
o Cement
o Petroleum
KAYLA HUMPHRIES
, FBS 222 CHAPTER 5
• The cost of one unit of a product is identical to the cost of another.
(Service firms can also use a process- costing approach).
• Process firms accumulate production costs by process or by department for a
given period.
• The output for the process for that period of time is measured.
𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑐𝑜𝑠𝑡𝑠
Unit costs =
𝑂𝑢𝑡𝑝𝑢𝑡
This approach of cost accumulation is known as a process-costing system.
PRODUCTION COSTS IN JOB-ORDER COSTING
• The traditional definition to product-costing is that production costs consist
of direct materials, direct labour and overhead.
NORMAL COSTING & OVERHEAD
APPLICATION
• Unit costs are very important because managers need accurate cost
information on materials, labour and overhead when making decisions. (This
cost should be generated timely)
Job-Order Costing Process Costing
Wide variety of distinct products Homogeneous products
Costs accumulated by job Costs accumulated by process or
department
Unit cost = Total job costs/output Unit cost = Process costs/output
ACTUAL COSTING VS NORMAL COSTING
• Two ways are commonly used to measure the costs associated with
production: actual costing and normal costing.
ACTUAL COSTING
KAYLA HUMPHRIES
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