Question

Select a product of your choice and discuss, based on research, if the product cost system should be job order or process cost. Why do you think this is the most appropriate costing system?

Answer 1

Job order costing system is the costing system of assignment of cost to specific unit or product. If businesess creating unique products for customers job order costing is used. Under this system time and cost used for specific product or unit can be ascertained. This system mostly used when customer order is small, specific.

Process costing is a system where direct and indirect cost of manufacturing process are allocated. It is assigning cost to mass production.

Job order costing is used for small production runs and process costing is used for large production runs.

All accumulated cost attributable to specific product, process costing involves aggregate of cost

For billing cost to customer job order costing is more useful because exact cost to units or product can be ascertained.

Here we will consider production of Luxury car.

1.Demand for luxury cars is specific and limited

2. It constructed considering customers specification and income level

3. We can trace direct material and labour to construction of this car

4.It produced in small quantities.

Job order costing system is useful for this product. Job order system is complex system but it is appropriate when levels of details are available, therefore when constructing luxury car most levels of details are available so job order costing system is appropriate. Another example is filling of individual tax return, in this all accumulated details attributable to job required.

process costing system used when products are identical nature ie production of soft drinks, manufacturing of table's, chairs .