CHAPTER 2

Job Order Costing

YOUR LEARNING OBJECTIVES
After completing this chapter, you should be able to: LO1 LO2 LO3 LO4 LO5 LO6 Describe the key differences between job order costing and process costing. Describe the source documents used to track direct materials and direct labor costs to the job cost sheet. Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs. Describe how costs flow through the accounting system in job order costing. Calculate and dispose of overapplied or underapplied manufacturing overhead. Calculate the cost of goods manufactured and cost of goods sold.

Lecture Presentation–LP2 www.mhhe.com/whitecotton1e

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FOCUS COMPANY: Toll Brothers Inc.
“America’s Luxury Home Builder” www.tollbrothers.com H

ave you ever found yourself in the following situation? You go out to a trendy new restaurant with a group of friends. You are on a limited budget, so you order the cheapest dish on the menu and a glass of ice water. Meanwhile, your friends indulge in a full-course meal with drinks, appetizers, entrees, and dessert. When it is time to pay the bill, would you prefer to split the check or get a separate tab for each person at the table? This common scenario illustrates the basic difference between the two costing systems discussed in the next two chapters. Process costing is similar to splitting the check, or spreading the total cost over the number of units produced (or in the case of a restaurant meal, the number of customers at the table). This simple method works well as long as each unit (or customer) consumes about the same amount of cost (or food). Process costing is discussed in the next chapter. With job order costing, a separate cost record is kept for each individual product or customer, similar to getting separate checks at a restaurant. This method makes sense when products