In: Accounting
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.
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