Question

Explain the similarity and difference between process costing and job-order costing.

Answer 1

Solution:

Similarities:

1. Process costing and job order costing determine the actual cost per unti in the manufacturing sector.

2. Process costing and job order costing both use direct materials, Direct labour, and manufacturing overhead to identify costs. Both have the same cost flows. Accountants record production in seperate accounts for materials inventory, labor and overhead. Then they transfer the costs to work in process inventory account.

3. Both process and job costing systems use predetermined overhead rates to apply overhead.

Differences:

Differences	Procees costing	Job costing
Cost accumulation procedures	Process costing accumulates costs by process or department	Job costing accumulates costs by individual jobs
Work in process Inventory accounts	Process cost systems have a work in processs inventory account for each department or process	Job cost systems have one work in process inventory account for each job
Units produced types	Companies which are used process costing prodce a single product, either on a continuous basis or for a long periods. All the products that the company produces under process costing are the same.	Companies which are used job costing work on any different jobs with different production requirements during each period.