Question

1. Job order manufacturing and process manufacturing are two major costing systems used in manufacturing. Answer the following questions regarding these two systems: a. Compare and contrast the two costing systems. b. Which costing system should a service firm, such as an advertising agency use? c. How do these two systems provide decision-making information?

Answer 1

A. JOB ORDER MANUFACTURING:

A method of costing in which cost of each ‘job’ is determined is known as Job Costing. Here job refers to a specific work or assignment or a contract where the work is performed according to the customer’s instructions and requirements. The output of each job consists of normally one or less of units. In this method, each job is considered as a distinct entity, for which cost is ascertained. Job Costing is applied when:

• The execution of the jobs is on the basis of client’s specification.
• All the jobs heterogeneous in many respects and each job require separate treatment.
• There is a difference in WIP (Work in progress), of each period.

Job Costing is best suited for the industries where specialized products are manufactured as per customer needs and demands. Some examples of those industries are Furniture, Ship Building, Printing Press, Interior Decoration, etc.

PROCESS COSTING:

A costing technique, which is used to calculate the cost of each process is known as Process Costing. Here process refers to a separate stage where production is performed to convert the raw material into another identifiable form. Process Manufacturing is used in the industry where identical products are produced in huge quantities. It is best suited for large-scale production is done as well as where there are multiple levels of producing a product. Some example of such industries is steel, soap, paper, cold drink, paints, etc.

COMPARISON:

BASIS FOR COMPARISON	JOB ORDER MANUFACTURING	PROCESS MANUFACTURING
Meaning	Job Manufacturing refers to calculating the cost of a special contract, work order where work is performed as per client's or customer's instructions.	A costing method, in which the costs which are charged to various processes and operations is ascertained, is known as Process Costing.
Nature	Customized production	Standardized production
Assignment of cost	Calculating cost of each job.	First of all, the cost is determined by the process, thereafter spread over the produced units.
Cost Center	Job	Process
The scope of cost reduction	Less	High
Transfer of Cost	No transfer	Cost is transferred from one process to another
Identity	Each job is different from another.	Products are manufactured consecutively and so they lose their identity.
	.

B. PROCESS THAT CAN BE USED IN ADVERTISING AGENCIES: The Job order Manufacturing will suits best at the advertisement agencies because they have different Job Execution on the basis of requirement and each execution will need different elements of cost

C. Job order manufacturing is used for the ascertainment of the cost of each job is known as Job Costing. whereby the Co. can monitor the resources and cost allocated and attributable to each and every job and plan accordingly where to take the Job or not.Job order Maufacturing is performed where the products produced of a specialized nature,

Whereas by Process Manufacturing we mean the costing technique used to determine the cost of each process. The Company can get the Contribution and allocated cost for each process.Process Manufacturing is used where standardized products are produced.