Obviously, the complicated systems used to track job costs are now automated as part of the overall accounting or enterprise resource system. However, it is still useful to imagine the process in terms of a more manual workflow.

For instance, often the first step after receiving an order would be for the production manager to put the job into the queue and to start an official job card.

Say for instance Jesus Sanchez orders a custom jazz guitar from a luthier company that uses job costing. The production manager would assign the job to a lead luthier and start the job card:

Date
Direct Materials Description
Cost
Direct Labor Hours
Std. rate
Total
Overhead $30/DLH

0Double line

0Double line
0Double line

Summary of costs
Direct Materials	0
Direct Labor	0
Mfg. Overhead	0
Total Cost	Single Line0 Double line

 

The company will likely use many forms to accumulate costs, such as a materials requisition form that will allow the production crew to remove raw materials from the warehouse:

 

In addition, company timesheets will have fields for direct and indirect time:

 

Luthier Chas Martin initiates a requisition for materials, gets it signed, takes it to the warehouse, and the warehouse manager issues four board feet of cherry and a maple neck, and the transaction is recorded in the company financial records as a transfer from raw materials to work in process:

Quantity
Item #
Description
Unit Desc.
Unit Cost
Total Cost

4
541115
cherry wood
bft
$ 55.00
$220.00

1
A85MPL
maple neck
each
$ 97.00
$ 97.00

Supervisor signature _____________________________________
Single Line $317.00 Double line

 

Chas works on that project and another during the day, and he also attends two administrative meetings. He turns in his timesheet:

Start Time
End Time
Job #
Hours
Admin
Hours
Total hours

8:00
10:30
5054
2:30

2:30

10:30
12:00

1:30
1:30

1:00
2:30
5054
1:30

1:30

2:30
5:00
5055
2:30

2:30

0:00

0:00

15163 Double line
6:30 Double line

1:30 Double line
8:00 Double line

Job:	5054	4:00
	5055	2:30
	Admin	1:30
		Single Line 8:00 Double line

 

At the end of the day, the job sheet would look like this:

Date
Direct Materials Description
Cost
Direct Labor Hours
Std. rate
Total
Overhead $30/DLH

17-Jul
Cherry wood
$317.00

$        –

17-Jul

        4.00
$25.00
$100.00
$120.00

$        –

$        –

$        –

$        –

$317.00 Double line

$100.00 Double line
$120.00 Double line

Summary of costs
Direct Materials	$ 317.00
Direct Labor	$ 100.00
Mfg. Overhead	$ 120.00
Total Cost	Single Line $537.00 Double line

As you have seen, the total of all the job cards constitutes a “subsidiary ledger” that will agree with the general ledger control account.

A subsidiary ledger is a secondary ledger that provides the details of a control account.

A control account is a summarized account balance to make viewing financial statements easier. The total of the items in the subsidiary ledger must match the balance reported in the control account.

This concept relates to job costing because we have three main inventory accounts control accounts: Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory. Raw Materials Inventory is used to store the costs of materials purchased but not yet used in production. The subsidiary ledger would contain details of the individual raw material components.

Work in Process Inventory is used when we have started but not completed a job and includes all job costs including any costs from the previous period. Costs added this period include direct materials, direct labor, and applied overhead. The subsidiary ledger consists of the job cost sheet showing all the direct materials, direct labor, and overhead costs applied to a job. The total of all jobs still in process will equal the balance of the Work in Process Inventory.

Finished Goods Inventory is used when we finish a job and before we sell it. We move the total job cost of the job from Work in Process Inventory to Finished Goods Inventory. The subsidiary ledger for each of the three accounts will be the job cards for the items in each of those categories.

If the work in process subsidiary ledger looks like this:

 

Then the control account in the general ledger will also show $3,297.50 in Work in Process, but the entries will be chronological and not sorted by job or project.

Here is a brief tutorial on how to use QuickBooks^® to track jobs:

You can view the transcript for “Creating Job Cost Reports in QuickBooks” here (opens in new window).

Now, let’s check your understanding of subsidiary ledgers and other records and forms used in job order costing systems.