Question

Job Order and Process Costing

a.Select two (2) of the following types of companies and explain whether each would use job order or process costing. Be sure to explain and support your answers.

1.A law firm

2.An oil refinery

3.A soda manufacturer

4.A custom-home builder

b.For each of the two types of companies selected above, give at least one example each of the following costs each company might incur. Fully explain your examples.

1.Direct material

2.Direct labor

3.Manufacturing overhead

4.Selling and administrative expense

Please provide the work cited. Thank you so much

Answer 1

1)    A Law Firm ---- A law firm performs task related to suites and law matters as per the customer’s requirement. Hence JOB COSTING is used in this type of company.

2)    An Oil Refinery --- PROCESS COSTING

In oil refinery crude or raw oil is processed and converted into petrol, kerosene oil, diesel etc.

So oil refinery requires a process costing method in order to find out the cost of product after each process.

3)    A soda manufacturer --- PROCESS COSTING

Process costing is adopted where it is difficult to trade the item of prime cost to a particular order because its identity is lost in volume of continuous production.

4)    A custom – home builder --- JOB COSTING

Home builder make homes of the customer on their specific requirements, design and preference.

b. For each of the two types of companies selected above, give at least one example each of the following costs each company might incur. Fully explain your examples.

1.Direct material

1. An Oil Refinery --- PROCESS COSTING: Here the crude oil is processed through refineries and its final products are extracted like kerosene, petrol, diesel.
2. Custom Home-Builder – Job Costing: The direct materials are bricks, cement, iron rods, sand etc which are used to construct house.

2.Direct labor:

1. An Oil Refinery --- PROCESS COSTING: The Direct labour are the people who are involved in extraction of crude and who are directly involved in processing process of the crude into the final products..
2. Custom Home-Builder – Job Costing: The people involved in building house like, Architect, Mason, Site Engineer. The wages paid to them are direct labour, because their involvement is required to build home.

3.Manufacturing overhead

1. An Oil Refinery --- PROCESS COSTING: Manufacturing overheads are the light, repairs, equipments, electricity involved in processing…...from crude form to final product.
2. Custom Home-Builder – Job Costing: Manufacturing overheads are the small petty costs, but are essential for constructing building, example are crane charges, vehicles charges, etc.

4.Selling and administrative expense

1. An Oil Refinery --- PROCESS COSTING:Oil Refinery companies sell their finished products like petrol, kerosene, diesel etc to various countries, the cost of selling team which are involved in selling the products, the labelling charges, the transportation costs, branding costs. All these costs come under selling and administrative expenses.
2. Custom Home-Builder – Job Costing: Here the buildings are marketed through professional marketing team, their cost, the cost for advertisement, Handling backoffice, etc are all selling and administrative expenses.