Question

What would the answer to question 8 be?

Would a job-order costing system or a process costing system be used for the production process? Give specific reasons for your choice of which costing system would be most appropriate for the manufacturer.

Answer 1

A production process can be of two types. (1) Mass production model where, manufacturer produces homogenious goods and (2) Customized production model where production is under taken only after an order is received from customer.

Job order costing and process costing are not two alternatives for same production model. Infact these two are mutually exclusive. In the case of mass production - Process costing system is applied because all units involved in the production are homogenious so it not necessary to determine cost of each unit seperately. Thus process costing applied in industries that produce homogenious goods in continous processes.

But refering to Customized production model, here each order is customer specific. Hence cost to be determined individually for each of the jobs received. Thus job costing is applied in those industries where work is undertaken based on special specification of the customer. Here units produced are highly heterogenious in nature.