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What is the main factor for a company in choosing between job order costing and process...

What is the main factor for a company in choosing between job order costing and process cost costing systems? Give two examples of each of these systems where you can see the applications of these systems. Can services be delivered by means of process operations? Support your answer with example.

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Expert Solution

Ans : The main factor for a company in choosing between job order costing and process cost costing systems are as bellows:-

Job Order Costing

Process cost costing

Types of products produced

Companies that use job costing work on many different jobs with different production requirements during each period.

Companies that use process costing produce a single product, either on a continuous basis or for long periods. All the products that the company produces under process costing are the same.

Cost accumulation procedures

Job costing accumulates costs by individual jobs.

Process cost systems have a Work in Process Inventory account for each department or process.

Work in Process Inventory accounts

Job cost systems have one Work in Process Inventory account for each job.

Process cost systems have a Work in Process Inventory account for each department or process.

Examples of manufacturing businesses that use job order costing system include clothing factories, food companies, air craft manufacturing companies etc.

Examples of service businesses that use job order costing system include movie producers, accounting firms, law firms, hospitals etc.

Examples of Process costing system include the manufacture of erasers, chemicals or processed food etc.

Can services be delivered by means of process operation..

A process operation is the workflow system where identical things are produced in a continuous process. The cost cannot be traced in this process to each product. Process costing is useful in place where production is done through one or more process. The cost of each unit is an average of total cost included in all process divided by the units produced.

Yes, services can also be delivered through the process flow operations. The work in a service industry can also divided into different individual processes or units and the work flows between them can be coordinated in a proper manner.

For Example

  • a fast food restaurant, people have their responsibilities like cleaning, serving, chopping vegetables, billing etc. The work flows between them is coordinated properly .Similarly, they also have standardized deliverance as quality service and a pre-determined standardized product on their menu.
  • An airlines industry, some employees deal with ticketing, some are engaged in baggage handling, others as air hostess etc. Everyone has homogeneous nature of work and is repetitive in nature

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