In: Accounting
"Both a job costing system and a process costing system enable the calculation of the unit cost of a product. However, process costing provides a more accurate unit cost." Do you agree? Discuss
Both job costing and process costing are a method of ascertaining per cost unit. The major diffeerence is the the utility of both the method. To understand the same we need to first understand both the methods.
Job costing- Job costing is generally used to determine the per unit cost for a unique product or a particular project. These type of cost allocate all the normal and specific cost to the unique product or the particular project. This method is generally used by construction companies,as the for those companies it is important to allocate all the cost to a particular project and ascertain accurate profit and loss for that particular project. It is used by those companies which manufacture a customized product for a particular contract. Here it is important to note that the base product is being customized so all the costs related in manufacturing such customized product are charged to such job work and accurate per unit cost is ascertained.
For example-1. A construction company undertakes contract to build a bridge and a building. In this case job costing will be used to ascertain costs related to bridge and building individually. 2.A Ltd. electric company that manufactures tranformers, B Ltd asks A Ltd. to provide a customized transformers. A Ltd agrees for the same and supply such customized product. A Ltd should record the cost related to customized transformers using the job costing method so as to ascertain the accurate cost for such customized transformers.
Process Costing- Process costing is used where the product undergoes a series of process.Process costing enables to identify the cost incurred in manufacturing a product at different levels and stages. This can be used where identical products are manufactured through a streamlined process.For example- A Ltd sugar from sugarcanes this involves a series of processes so the cost related to each and every process will be recognised using process costing.
The use of Job costing and Process costing depends upon the nature and purpose of the product and project. Both the method are accurate in ascertaining the per unit cost.