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In: Accounting

What is a good example of a company that uses job costing and another company that...

What is a good example of a company that uses job costing and another company that uses process costing? Also, what type of products do these companies make or provide services for and why would one company use one method over the other?

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Expert Solution

A good example for job costing would be any industry which provides customized services to the user like tailor made garments, customized furniture, services of lawyers or accountants. for this question i would like to take hospitals like Fortis hospital as an example to explain the concept of job costing. job costing is generally used for unique products.

for process costing which involves production of standardized products or services like car manufacturing, packaged food industry or readymade garments. for this question we would take ready made garments industry, zara as an example

why job costing?

fortis hospital provides healthcare facilities. hospitals provide services to each of its patients individually according to the problems and health of the patient. every patient is required different treatment according to the problem one is going through and every patient is charged differently according to the treatment given to him/her.

why not process costing?

since hospitals do not follow standard treatment regimes for every patient that comes through them. heart patient is given different treatment over the kidney patient therefore hospitals can not adopt process costing method. every patient comes with unique problem and given unique treatments for which they are charged accordingly therefore process costing is not appropriate for hospital industry.

why process costing?

ready made garment and merchandise company, Zara, uses process costing method as it manufactures quantities in bulk and follow standardized manufacturing process. customers are given options for whatever stock they have for a fixed price. customizations except for the standard sizes are not given. thus every process is charged for costing the product unit. dying unit is charged seperately, stitching unit is charged seperately and so on and together the unit cost is formed.

why not job costing?

job costing allocates separate process to every unit and hence costing is done individually for every unit but in process costing bulk production for standardized products is done therefore Zara follows process costing for its production and not job costing

ekkarill92 answered 2 months ago
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