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 response of 400-600 words 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

Ans-1 : Multiple Cost Accounting System is a cost accounting system that includes features of both:

1. job costing
2. Process costing system

this is also called operation costing system or a hybrid costing system. this is useful when a production facility handles groups of products in batches and charges the cost of materials to those batches.

Ans-2 : Factors should a company take into consideration in deciding whether to use job order costing or process costing:

Job Order Costing	Process Costing
Lots of jobs are worked on during a given period, and each job requires different things from production.	One product is produced all the time, or for an extended period of time and every unit is identical.
The costs are accumulated by job.	Costs are accumulated by department.
Unit costs are recorded by job on a cost sheet that follows the job through the production department.	Unit costs are calculated by department.

Ans-3 : Situations where a company has a mixed production system that produces in large quantities but then customizes the finished product prior to shipment, it is possible to use elements of both the job costing and process costing systems.

for example: Rolls Royse Car customized as per customer request.

Big plant meant for specific purpose.