Question

1. List some of the major differences between job order costing (as learned in the previous chapter) and process costing. (6pts)

2. Which would be better to use for each of the following types of companies, job order costing or process costing? Explain your reason for each. (3pts each)

a. Accounting firm servicing multiple clients

b. T-shirt manufacturer

c. Popsicle manufacturer

Answer 1

Job costing vs. process costing- Differences

· Job costing is customer order driven and Process costing is non-customer order driven

· Job costing- cost is accumulated at each job level. In process costing cost is accumulated at each department and process level

· Job costing is unique and non identical. Process costing involves production of identical units which are homogenous.

· Job costing involves usually small process runs. Process costing involves huge production runs through multiple processes before final output

· In job costing billing is each job wise. In Process costing prices are usually standardised to be sold in external market.

· Job costing is each job oriented which differs from other jobs. Process costing has its own features like normal and abnormal loss depending on product being manufactured.

a. Accounting firm servicing multiple clients

Job order costing is preferable since each client would have their own scope for work assigned. Also cost is accumulated for each service job based on work spent by professionals and support staff

b. T-shirt manufacturer

Process costing is preferable since production is on mass scale and there are multiple processes in production.

c. Popsicle manufacturer

Process costing is preferable since production is standardised and the input has to pass through multiple process before final output.