How Do you Assign Direct Materials and Labor Costs to Jobs?

The job cost sheet reports manufacturing costs for each job. It also serves as a subsidiary ledger for the work-in-process inventory account.

Two primary documents track the assignment of material and labor to a Job Cost Sheet:

• Material Requisition Form - Raw materials inventory moved into production is tracked in a materials requisition form. It identifies the job for which the materials will be used. 
• Timesheet - This document tracks the hours that workers spend on each job. 

To record the cost of raw materials purchased, debit the raw materials inventory account and crediting either accounts payable or cash. 

To record hours worked, debit the salaries and payroll and credit cash. 

What Accounts are Used in Job Costing?

There are also minor differences in the accounts that are used by manufacturing organizations and service organizations.

Accounts Used in Service Organizations and Manufacturing Organizations

• Raw materials inventory
• Parts inventory or supplies
• Balance sheet (asset)
• Work-in-process inventory
• Work in process*
• Balance sheet (asset)
• Finished goods
•   Balance sheet (asset)
• Cost of goods sold
• Cost of services (or other expense accounts)
• Income statement (expense)
• Manufacturing overhead
• Overhead (or service overhead)
• None (clearing account)

Some service companies do not use a work-in-process account but instead simply charge costs directly to expense accounts.

Service organizations use a job cost sheet like the one discussed earlier to track direct materials, direct labor, and overhead.

How to Assign Direct Material Costs to Jobs

The  materials requisition form specifies the type, quantity, and cost of materials requested for production and the job in which the materials will be used. 

The work-in-process  inventory account tracks manufacturing costs in total. You will use s separate subsidiary ledger to track manufacturing costs for each job. 

The work in progress inventory subsidiary ledger will consist of individual job cost sheets - one for each job. 

To record the raw materials purchased, the raw materials inventory account is credited. Then, the work-in-progress inventory account is debited. 

Then, post the information shown on the materials requisition form to the appropriate job cost sheet. 

How do service organizations track direct materials using job costing?

Direct materials are often negligible in a service organization. Thus, many service organizations do not track direct materials for each job. 

If, however, the direct materials are significant, service organizations track the direct materials for each job.

The process of recording this information in the journal and job cost sheet is  exactly the same as for a manufacturing company.

How to Assign Direct Labor Costs to Jobs

Direct labor refers to the time spent by workers to convert materials into a finished product. Assigning direct labor means assigning this time to a product or job. 

Note: This process is carried out primarily in manufacturing companies. 

Worker hours, date, and job number are tracked on a time sheet (also known as a  time card, time ticket, or job ticket. 

Next, use this information debit the Work-in-Process account and credit the Salaries and Wages Payable account.

Next, post the information shown on the timesheet to the specific job cost sheet.

How do service organizations track direct labor using job costing?

Direct labor tends to be the most significant cost for service organizations. 

The process of tracking labor using a timesheet and recording labor costs in the journal and job cost sheet is exactly the same as for a manufacturing company.

Related Topics

• Job Costing vs Process Costing
• Assign Direct Material and Direct Labor to Job
• Assign Manufacturing Overhead Costs to Job
• Assign Overhead Costs to Products
• Plantwide Cost Allocation
• Department Cost Allocation
• Activity-Based Costing
• Weighted-Average Cost of Products
• Production Cost Report
• Fixed, Variable, and Mixed Cost Estimations
• Contribution Margin Income Statement
• Cost-Volume-Profit Analysis
• Margin of Safety
• Contribution Margin per Unit of Constraint
• Absorption Costing vs Variable Costing
• Differential Analysis and Decisions
• Cost Decisions for Joint Products
• Capital Budgeting
• Life Cycle Costing
• The Master Budget
• Activity-Based Budgeting
• Standard Costs
• Imputed Value
• Variance Analysis for Product Costs
• Absorption Pricing
• Price Variance
• Absorption Variance 
• Responsibility Centers
• Comparing Segmented Income
• Using ROI to Evaluate Performance
• Using Residual Income to Evaluate Performance
• Use Economic Value Added to Evaluate Performance
• Transfer Pricing