Question

Write a response to the following in a minimum of 500 words:

The type of product a company produces affects the type of accounting system needed to determine product cost.

The 2 most common types of costing systems are job-order costing and process costing.

Compare and contrast job-order and process costing systems. How can events in a job-order costing system affect financial statements? How can events in a process costing system affect financial statements? Provide specific examples for each type.

Answer 1

 

Job Order Costing: Job order costing is a costing method which is used to determine the cost of each job whose production activities are carried out against customers order and produced according to customers requirement and specifications. The primary aim of job costing is to ascertain the profit & loss on each job undertaken.

Process Costing:- Process costing is a method of costing employed to ascertain the cost of goods and services of processing industry at each process or stage of manufacture. It is defined as " A method of cost accounting where by costs are charged to process or operations and averaged over units produced."

Contrast between Job Costing & Process Costing

Basis	Job Costing	Process Costing
Uniqueness of product	Job costing is used for unique products	Process costing is used for standardised products.
Size of job	Job costing is used for very small production runs	Process costing is used for large production runs.
Record Keeping	Much more record keeping is required for job costing since time & material must be charged to specific jobs.	Process Costing aggregates costs, and so requires less record keeping.