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Understanding Job Order Costing Journal Entries

Oct 11, 2024

Accounting Lecture Notes

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Problem 3.5a: Journal Entries in Job Order Costing

  • Focus on journal entries for job order costing
  • Recommended to revisit Chapter 2 for basics on journal entries if needed
  • Understanding the flow of costs in the manufacturing process
    • Raw materials âžœ Work in process âžœ Finished goods
    • Costs: Direct Material (DM), Direct Labor (DL), and Manufacturing Overhead (MOH)
    • Journal entries follow this flow

Key Concepts

  • Cost of Product:
    • Includes material, labor, and overhead
    • DM, DL, and overhead added during production
  • Journal Entries for Manufacturing Process:
    • Direct materials go into work in process (WIP)
    • Direct labor costs go into WIP
    • Applied (estimated) overhead goes into WIP

Example: Intercity Roofing Manufacturers

  • Uses job order costing
  • Applies manufacturing overhead based on direct labor costs
    • Estimated $70,000 MOH, $140,000 direct labor costs
    • Overhead rate: $0.50 per direct labor dollar

Transactions and Journal Entries (A through K)

  1. Purchase of Raw Materials and Supplies

    • Purchased $180,000 direct materials on account
    • Purchased $5,000 supplies on account
    • Entries:
      • Debit: Raw Materials Inventory
      • Credit: Accounts Payable

  2. Requisition of Materials and Supplies for Production

    • $170,000 direct materials, $4,500 supplies
    • Entries:
      • Debit: WIP for direct materials
      • Credit: Raw Materials Inventory
      • Debit: MOH for supplies
      • Credit: Supplies

  3. Incurred Employee Costs

    • Direct labor: $150,000
    • Indirect labor: $40,000
    • Admin salary: $190,000
    • Sales salary: $30,000
    • Sales commissions: $90,000
    • Entries:
      • Debit: WIP for direct labor
      • Debit: MOH for indirect labor
      • Debit: Admin Salaries Expense
      • Debit: Sales Salaries Expense
      • Debit: Sales Commissions Expense
      • Credit: Wages and Salaries Payable

  4. Advertising and Rent Expenses

    • Advertised: $5,000
    • Rent: $12,000 (40% sales, 60% production)
    • Entries:
      • Debit: Advertising Expense
      • Debit: Rent Expense
      • Debit: MOH for production-related rent
      • Credit: Accounts Payable

  5. Depreciation and Insurance

    • Depreciation: $25,000 (70% factory, 30% office)
    • Insurance expired: $15,000 (90% factory)
    • Entries:
      • Debit: MOH for factory depreciation
      • Debit: Depreciation Expense for office
      • Credit: Accumulated Depreciation
      • Debit: MOH for factory insurance
      • Debit: Insurance Expense for office
      • Credit: Prepaid Insurance

  6. Applying Overhead

    • Applies $75,000 (150,000 DL * $0.50 rate)
    • Entries:
      • Debit: WIP
      • Credit: MOH

  7. Completion and Sale of Goods

    • Cost $375,000 completed, sold for $800,000
    • Entries for completion:
      • Debit: Finished Goods Inventory
      • Credit: WIP
    • Entries for sale:
      • Debit: Accounts Receivable
      • Credit: Sales Revenue
      • Debit: Cost of Goods Sold
      • Credit: Finished Goods Inventory*

Conclusion

  • Completed journal entries for all listed transactions
  • Next parts and further details to follow in subsequent videos

Full transcript