Question

What is a company that would use a job costing system and explain why. In addition, what is an example of a company that uses a process costing and explain why.

Answer 1

A company that process/produce or manufacture different products or provide service that are distinct in nature and cost can be assigned to particular product or a batch of units or job for a particular customer/client would use job costing system.

Job costing is the process of determining direct material, labour and overhead cost for each job in a systematic way, then adding up a margin to give quote to the customer. It ensure the product price cover all the actual cost, overheads and provide a profit on that.

For example, a company manufacturing airplanes, use job costing system. This company can assign actual cost and overhead for manufacturing a particular airplane. If it receive order for manufacturing airplane it can provide a quote to the customer on the basis of job costing system, and can ensure their profit margin.

Process costing is the system to assign cost to a process or departments a product goes through on its way to completion.

A company that manufacture similar products in large quantity mostly use process costing system. For example, A company manufacturing soft drinks, paints, steel, rubber, plastic, where the product goes through different processes or departments uses process costing system. Under this system, cost is accumulated from beginning process or department to various processes or departments it goes through till it is completed and then this cost is divided by the number of units manufactured to get the unit cost.