Question

Costing systems provide information that is used for a large variety of business decisions including planning production of goods and services, pricing products, and controlling associated costs of production. Thus, the choice of an appropriate costing system is a key underlying foundation for good decision making. In a written response address the following questions: 1.In what type of situation would a company use multiple cost accounting systems? 2.What factors should a company take into consideration in deciding whether to use job order costing or process costing? 3.Describe two products or services that might use both process and job order costing methods to determine the cost of a finished unit.

Answer 1

1. Cost accounting system are the approaches and procedures used by business houses to track the resources consumed in production of goods and delivering of services to customer. In most of companies multiple accounting system are used to assure the best possible decision making for the progress and well being of the business. Multiple cost accounting system is typically use to compute cost of products units which are produced after processing in different operations. Cost accounting system helps to establish two main objects which are (1) To determine the unit cost of manufacturing a product or providing a service and (2) to provide supervisors with useful information for planning and cost control purposes.

2. Job order costing is a method of assigning costs to a specific unit or product. Process costing is a method of assigning costs for a mass quantity of products and services. Job costing is useful where product or service is one time event. For example construction of house from beginning to end, repair of car. On other hand process costing is used to provide same services. For example a bank provides same services, a company producing thousands of product for its customers.

3. Refrigerators: Both job costing and process costing is used. It required same processing but different types of materials. Job costing is used to assign different types of materials to refrigerators and process costing is used to allocate cost of labour and overhead equally across all refrigerators are produced.

Similarly job costing and process can be used in manufacturing of vehicles.