Question

Why might a company choose a process costing system over a job order costing system? How are the two systems similar, and how are they different?

Answer 1

A company may choose process costing over job costing in following cases - :

i )when products are produced continuously for stock

ii)all products are homogeneous in nature

iii) products and process are standardized.

Similarities between two -

i)main aim of both costing system is to compute the cost.

ii)both system maintain and use same basic accounts such as raw material control account,wages control account ,etc.

iii)flow of cost is same in both of them i.e. raw materials - work in progress - finished goods

differences between two -:

i) in job order , products are produced as per customer's specification

where as

in process costing , products are produced continuously for stock

ii) in job , costs are accumulated by individual job

in process,costs are accumulated by process/department for the cost period.

iii) in job , products are not standardized

in process , products are standardized.

iv)in job , job cost sheet is the main document

in process , process production report is the main document.