Question

When are companies likely to use a job costing system? When are companies likely to use a process costing system? Describe the specific characteristics of each system and provide 2 examples from companies that use each system (at least 4 companies should be described).

Answer 1

Answer

In a job costing system costs are accumulated and then assigned to specific jobs, customers, projects, or contracts. These costs are tracked on a job cost sheet as supporting documentation. These job cost sheets record and summarize the costs of direct materials, direct labor, and factory overhead for a particular job. In the healthcare industry, procedure costs are tracked utilizing the job costing method.

Job costing refers to the accumulation of the production costs to specific units or group of units while process costing refers to the accumulation of costs for long production processes in which the products are undistinguishable, this include the production of gasoline.

Companies will use job costing method when the products are unique, process costing will be used for standardized products. Similarly, job costing is mostly used for small production processes while process costing is used by companies with large production runs. Consequently, firms that produce goods to customer taste and preference and which require customization will be better placed to use job costing rather than product costing.

Job costing system has the following characteristics:

In the job costing system costs are accumulated either by job or by batch. The labor costs of a specific job are recorded in a time sheet and compiled in a time sheet for that job afterwards. Job costing system is used for assigning costs to distinct jobs that are non-homogenous in nature. The system can be either manual or computerized. Example of companies using the system include: Boeing, Airbus, Oracle, Google, Lockheed Martin, etc. These companies do not have a single process that produces all the products or services.

Process costing on the other hand has the following characteristics:

It deals with products that are homogenous in nature; it also assigns costs to different processes since all units are identical. Besides, the system requires less record keeping as compared to job costing system. It also can be used in both manual and computerized environments. Examples of companies using this system include companies like PnG, Unilever, Pepsi, Wrigleys (Chewing) companies.