Question

Search the Internet and find the websites of two manufacturers. After reviewing the websites, decide if you think each manufacturer uses job or process costing. Share your decision and explain why you came to this conclusion.

In addition, make a list of costs you think are incurred in the production and selling of products for your two manufacturers. Label the costs as direct material, direct labor, manufacturing overhead or period costs. Report a minimum of two costs in each category for each of your manufacturers.

Answer 1

PROCESS COSTING

Process costing is an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process. Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to be allocated to individual units of product. It assigns average costs to each unit, and is the opposite extreme of Job costing which attempts to measure individual costs of production of each unit. Process costing is usually a significant chapter. It is a method of assigning costs to units of production in companies producing large quantities of homogeneous products..

Process costing is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture. CIMA defines process costing as "The costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Costs are averaged over the units produced during the period".

Process costing is appropriate for companies that produce a continuous mass of like units through series of operations or process. Also, when one order does not affect the production process and a standardization of the process and product exists. However, if there are significant differences among the costs of various products, a process costing system would not provide adequate product-cost information. Costing is generally used in such industries such as petroleum, coal mining, chemicals, textiles, paper, plastic, glass, food, banks, courier, cement, and soap.

There are four basic steps in accounting for Process cost:

• Summarize the flow of physical units of output.
• Compute output in terms of equivalent units.
• Summarize total costs to account for and Compute equivalent unit costs.
• Assign total costs to units completed and to units in ending work in process inventory.

JOB COSTING:

Job costing involves the accumulation of the costs of materials, labor, and overhead for a specific job. This approach is an excellent tool for tracing specific costs to individual jobs and examining them to see if the costs can be reduced in later jobs. An alternative use is to see if any excess costs incurred can be billed to a customer.

Job costing is used to accumulate costs at a small-unit level. For example, job costing is appropriate for deriving the cost of constructing a custom machine, designing a software program, constructing a building, or manufacturing a small batch of products

Job costing demands a considerable amount of costing precision if costs are to be reimbursed by customers (as is the case in a cost-pluscontract, where the customer pays all costs incurred, plus a profit). In such cases, the cost accountant must carefully review the costs assigned to each job before releasing it to the billing staff, which creates a customer invoice. This can cause long hours for the cost accountant at the end of a job, since the company controller will want to issue an invoice as soon as possible.

• Materials. It accumulates the cost of components and then assigns these costs to a product or project once the components are used.
• Labor. Employees charge their time to specific jobs, which are then assigned to the jobs based on the labor cost of the employees.
• Overhead. It accumulates overhead costs in cost pools, and then allocates these costs to jobs