Question

In: Accounting

1. Job-order costing and process costing have the same basic purpose. What is this purpose? 2....

1. Job-order costing and process costing have the same basic purpose. What is this purpose?

2. Explain under what conditions it would be appropriate to use a job-order costing system, and under what conditions would it be appropriate to use a process costing system. In your answer, include an example of a company (industry) that would use job-order costing, and a company (industry) that would use process costing.

3. The major difference between job-order costing and process costing is in how product costs are accumulated. Explain how costs are accumulated in job-order costing, and how costs are accumulated in process costing.

Solutions

Expert Solution

1. Both the costing system have the same purpose of calculating cost effectively for the units to be produced.

2. Job order costing is used when the products are able to be differentiated i.e. cost can be directly allocated to a product whereas in process costing this cannot be done and all the costs incurred are accumulated and allocated to the number of units produced.

For example, Examples of manufacturing businesses that use job order costing system include clothing factories, food companies, aircraft manufacturing companies etc. Example of a company using process costing can be  the manufacture of erasers, chemicals or processed food.

3. In job order costing all the costs to be incurred in a particular job are added up and then allocated to the specific product whereas in process costing, costs to be incurred cannot be differentiated to a particular product and they are added up and then allocated to the number of units produced


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