Question

1. Explain the similarities and differences between job-order costing systems and process costing systems.

List three American companies that would likely use a job-order costing system and three other companies that would likely use a process costing (you can list manufacturing and/or service companies). Explain your answer (why do you think these companies would be using such costing systems?)

Answer 1

Similarities between Job Order Costing & Process order Costing are:

• Both the systems of costing use a fixed/predetermined rate for applying Overheads
• Motto of both the system is to determine the cost of products and assign material, labor, and overhead costs to products and to provide mechanism for computing unit product cost
• flow of cost through manufacturing accounts is same

Major differences between Job Order Costing & Process order Costing are as follows:

• Computation of Unit cost: Under Job order costing, unit costs are computed by job worker on the job cost sheet, while under process costing unit cost is computed by department on department production report
• Accumulation of cost: Costs are accumulated by individual job in Job order system and costs are accumulated by departments in Process costing system
• WIP Inventory accounts: Under Job costing systems , one Work in Process Inventory account for one/each job. And under Process costing system we have a WIP Inventory a/c for each department or process.
• Under Job costing an entity produce different product under different different job work. While under process costing produce single product .

American companies use Job order costing are Deloitte & touche, Boeing & Lockheed Martin

American companies use Process costing are wrigley, Chevron corp, Pittsburg paints.