In: Accounting
1. How are the flow of costs different in a Process costing system as compared to a Job-Order costing system? As part of this explanation it may be helpful to also explain what types of production processes would most likely use a Process costing system and which might use a Job-Order costing system?
2. Explain the concept of Equivalent Units used in a Process costing system.
Answer for 1)
The Flow of costs in process costing is different as compared to job costing as process costing averages the cost incurred for large amount of standardised products where as the job costs tried to find the cost of particular job.
The flow of costs in process costing method is used in case of homogeneous products whose production process is continous and costs are ascertained for every process through which the product passes and bricks can best examples for process costingwhereas Job Costing is used when different types of jobs are done for different types of products over a period of time like constructions.
Answer for 2)
The name as indicates equivalents units are units which are partially process by the manufactures and expressed in terms of fully converted units upto the extent of work completed along with the work actually completed.
For example,10000 units of a stapler is fully processed and other 4000 units are in progress and completed to the extend of 40%.Now the equivalent units that are produced is 11600 units [10000 units+1600 units(i.e4000 units×40%)].