Question

1. Job order manufacturing and process manufacturing are two major costing systems used in manufacturing. Briefly contrast the characteristics of these two systems. Identify or list at least four differences between the two costing systems. (1 point)

  

2. Answer this two-part question. What is meant by equivalent units of production, and why are they important when a process cost accounting system is used

Answer 1

1. Job order production is the process of manufacturing custom or unique products for specific customers. Sometimes job order production is also called job order manufacturing or custom production because each order or job is a customize order placed by the customer. Most of the time custom jobs are only produced once.

Characteristics:

(i) Flow of material and parts form one location to another is intermittent or discontinuous.

(ii) Mechanization and division of labor is not economical.

(iii) Each job order is different form the previous as regards its type , specification, quality and

quantity.

(iv) Product design takes a lot of time.

(v) Prior planning becomes difficult.

Process manufacturing is a branch of manufacturing that is associated with formulas and manufacturing recipes, and can be contrasted with discrete manufacturing, which is concerned with discrete units, bills of materials and the assembly of components.

Characteristics:

Materials Requirement Planning. These features enable effective management of manufacturing processes, including production planning, scheduling, and inventory control.

Traceability. Track the location or application of materials, parts, and products, and create a record of their location or application.

Bin Management. These features allow organizations to assign bin numbers to materials, parts, and products that can be traced and monitored to improve inventory accounts and production scheduling.

Inventory Management. These features provide a clear view of the constant flow of materials and products into and out of the organization.

2. An equivalent unit of production is an indication of the amount of work done by manufacturers who have partially completed units on hand at the end of an accounting period. Basically the fully completed units and the partially completed units are expressed in terms of fully completed units.

Equivalent units is a cost accounting concept that is used in process costing for cost calculations. It has no relevance from an operational perspective, nor is it useful for any other type of cost derivation other than process costing.

Equivalent units of production are usually stated separately for direct materials and all other manufacturing expenses, because direct materials are typically added at the beginning of the production process, while all other costs are incurred as the materials gradually work their way through the production process. Thus, the equivalent units for direct materials are generally higher than for other manufacturing expenses.

When you assign a cost to equivalent units of production, you typically assign either the weighted average cost of the beginning inventory plus new purchases to the direct materials, or the cost of the oldest inventory in stock (known as the first in, first out, or FIFO, method). The simpler of the two methods is the weighted average method. The FIFO method is more accurate, but the additional calculations do not represent a good cost-benefit trade off. Only consider using the FIFO method when costs vary substantially from period to period, so that management can see the trends in costs.