Question

What are the two major types of cost accounting systems and what are the differences between the two

Answer 1

1) The two major type of cost accounting system are
      a) job order costing
      b) process costing
Job order costing- job order costing is the process of assigning the cost you incur to a specific job you or your business is involved with.
Process costing- process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the unit produced.

Difference between job order costing and process costing.

Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units.
            Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other.
       
Thus following difference between two costing system are:
1) Size of job. Job costing is used for very small production runs, and process costing is used for large production runs.

2) Customer billing. Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.

3) Uniqueness of product. Job costing is used for unique products, and process costing is used for standardized products.

4) Record keeping. Much more record keeping is required for job costing, since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.

5) Transfer of cost- in job costing there is no transfer of cost and in process costing cost is transferred from one process to another.

6) identity - in job costing each product is different from another, and in process costing products are manufactured consecutively and so they lose their identity.

7) industry type- job costing is suitable for the industries which manufactures product as per customer's order, and process costing is perfect for the industry where mass production is done.