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In: Accounting

Discuss the differences between product costing and job costing. What type of company would general use...

Discuss the differences between product costing and job costing. What type of company would general use product costing? What type of company would generally use job costing? Give a real world example of each and explain your reasoning.​

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Expert Solution

Job costing - Costs are collected and accumulated according to jobs, contract, or projects. It is usually used when a the outcome is a distinct product, and not a standard product. It is also used when the process of manufacturing the product consists of several distinct processes which are undertaken in a sequence to manufacture a final product. (eg. in the apparel industry the processes may be - cutting, stitching, dyeing etc)

Product costing -

Product cost refers to the costs used to create a product. These costs include direct labor, direct materials, consumable production supplies, and factory overhead. Product cost can also be considered the cost of the labor required to deliver a service to a customer. In the latter case, product cost should include all costs related to a service, such as compensation, payroll taxes, and employee benefits.

The cost of a product on a unit basis is typically derived by compiling the costs associated with a batch of units that were produced as a group, and dividing by the number of units manufactured. The calculation is:

(Total direct labor + Total direct materials + Consumable supplies + Total allocated overhead) ÷ Total number of units = Product unit cost

It is generally used when the final product is standard (eg soaps)

Industries -

Job costing - Printing press, hardware, ship-building, repairs, etc.

Product costing - pharmaceutical or drug industries, readymade garment, TVs etc.


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