Question

This passge below require critical analysis and breakdown

Job costing is used for unique sales that require customization for each client (Wallstreetmojo.com, 2020). Because of the variance it creates in each order, job costing is best used for companies that have a need to track costs for each client. Hilton (2016) notes that job-costing accumulates cost for each job order that is reported using a job-cost record that lists the exact number of units used in each job. Shea Homes is a good example of a company that would use job order costing. Being a large home builder, their jobs might encompass a single home or a housing development, but each one of these jobs would entail unique features that require costing to be done specific to each customer’s requirements. Each home is created with a varying size, number of rooms, cabinetry, flooring, counter tops, and more that all carry different costs and require the builder to be able to price the job appropriately to the client.

Process costing is used for standardized products and is most common in mass production companies (Wallstreetmojo.com, 2020). The uniformity of the products allows the costs to follow the steps in the process rather than needing to track each individual sale. Hilton (2016) mentions that process-costing accumulates cost for each department and uses weighted averages to determine the amounts billed to each unit of the finished good. Kohler would be an example of a company that would use process-costing. Even though they produce a variety of kitchen and bathroom products, they are standard production and not custom-made for the end-user. They produce large quantities of the same faucets, sinks, showers and other items that are then packaged a resold through distributors making tracking costs by department a more optimal choice than trying to track by individual production runs for specific client purchases.

Answer 1

JOB COSTING

Job costing means a specific accounting methodology and it is incorporated to figure out the total expense for a product. Due to the fact that certain fields like construction will involve a variety of techniques and operations, so the accountants follow this Methodology to find out the total expense involved in the creation of it. And by using it they are able to find the total expense including the tax involved in it.

Shea Homes is a best example for it, because the choice and taste of customers will be different for each other. And hence they want to set up the houses on their choice and hence there will be no standardized techniques followed.

It is very important because when the expected price will be different from the actual price needed. Because other than the primary means of production or construction there involves subsidiary costs such as accounting, auditing, shipping. In such scenarios the job casting is a very effective technique to be involved in order to ensure the accuracy.

PROCESS COSTING

Process costing is used by the companies to check the fact that where is their money spent on production processes, which means from the production to the distribution process. And to identify the amount of cash flowing at different stages, and to use it effectively and to cut the unwanted expenses. The costing system will be different for different type of industries and will be associated with the production process involved in it.

Process costing is appropriate for the companies who produce the identical products in mass number. It become effective when the production is through a series of operations or the process involved in it. Kohler is a best example for the process costing. The company produces a bulk number of products such as bathroom or kitchen products. And the important feature is that they produce only standard products and not the products on consumer choice.

And the main reason for the process costing is that the production may be done in large quantities but the fact is that the purchase will be done only in a small extend. And also it is very essential for the managers to control the cost of manufacturing. So the remarkable fact is the profit will be created from only a part or portion of products produced. So they will produce the products at a large extend and sold the products through distributors.