Question

In Unit 1, we looked at the various costing systems such as job costing and process costing. If a company was considering using one of these systems, what things should they consider? Provide a 2-paragraph (minimum) reply using proper grammar and professional style discussing:

The considerations that should be evaluated before selecting an appropriate costing system. What systems work better for different types of companies? When would each system be appropriate?

The different types of information that would need to be determined, recorded and tracked. What types of costs would need to be tracked in each type of system? At what level would the costs need to be tracked (unit, batch, etc.)? What complications could arise from this?

The post needs to contain relevant terminology and a firm understanding of the various cost systems being discussed in order to achieve the maximum number of points.

Answer 1

Job costing :This costing system is best in Manufacturing Company . This costing framework help to recognize use if raw material , Equipment , work hours .

What is job costing : This costing system represents to aggregation or assemble of the expense of raw material, work and overhead for specific job wise. This is a phenomenal instruments to following costing to individual job wise .With assistance of this costing framework , accountant can without much of a stress make track on Variance of cost ( Actual Vs Budget ) project wise .

Job costing consist of distribution of Material : It will follow way like Work in process to Finished goods Inventory – at last it will move to cost of Goods sold ( recorded sales transaction )

Job costing allotment of Labor : Labor might be charged straightforwardly to Job on the off chance that we can recognized cost project wise . Other than direct project cost , we can stopped under " Overhead expense" . Job costing allocation of Overhead .

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process costing-This costing method utilized in Standardized item and use in enormous creation units or large production units, Record all transactions with less time ,

This costing system additionally called as Operation costing. Under procedure costing flow would resemble :

Raw Material - Process 1 - process 2 – Finished goods

This method  for costing relevant in identifies with concurrent , standardized tremendous item process .

Both direct and indirect cost charged to the process .

While ascertaining unit cost , accountant needs to consider about all normal just as abnormal losses.

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Activity Based costing : under this costing technique , an association relegate cost on every activity wise. This technique for costing system basically utilized in Manufacturing Operation . Recently service Industry additionally began to adopt ABC based system .

This technique for costing mostly assign Overhead and Indirect expense to related items and services .An activity is a cost driver

This costing method help us to decide profitability -- Product line wise .

Under this costing technique , we have to derive cost driver ( Like unit/Hrs) –

• compute cost driver rate – Multiply cost driver rate with Cost driver

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When might every system be suitable :

As of now clarified above , Job costing is the best In Manufacturing Industry. This costing method will assist us with understanding Job/Project wise following of Material Labor and Overhead expense . in the event that any expense not legitimately allocated to project , at that point caught equivalent to Indirect expense

In other side , Activity Based costing is likewise material in Manufacturing base industry . Under this method, we would more be able to concentrate on assignment of Overhead expense and Indirect expense – activity wise and we can have a total track on cost 9 special overhead and indirect expense .

Process base costing likewise similarly significant where Production process in long and included numerous division , unit involvement . We can without much of a stress track cost on each procedure premise . This costing method assists with distinguishing cost of each procedure and the final item at short time period . We can easily determined Unit cost .

Method for production typically standardized right now costing , which will assist with deciding Average expense . Most significant factor is this costing method include less labor and low cost contrasted with Job costing .

Easy allocation base of cost . Under this costing technique we utilize Standard costing system, which is very useful

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What complications could arise from this?

Process costing : significant negative factor in this costing technique we utilized Historical information , which probably won't be useful for future decision.

This costing ordinarily dependent on Average expense , which probably won't be consistently show genuine and right picture .

Most disadvantage is – if any error in one process , it will have consequent effect .

Job costing: Major hindrance in this costing method despite everything follow huge Paper base work. This procedure includes an excessive number of labor and not at all cost effective .

As a general rule it is hard to actualize . We normally face huge Measurement challenges .

While allocation of Overhead , organization not utilized best strategy to allot cost , which makes confusion with in Organization .Overhead cost count totally based on Estimate.

Activity Based Costing:This method for costing also very time consuming . This costing system additionally not cost effective. This costing system may not be valuable where Overhead expense is less and this method not followed proper GAAP (Generally accepted accounting principles) system.

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