Question

What differences exist for a manufacturing organization between process costing and job order costing? What similarities are there between the two methods? Are the two methods mutually exclusive? Please include examples of companies using one method or the other (or both).

Please explain the concept of equivalent units. Why does the process costing method use them? Why doesn't job order costing need to use them?

Answer 1

1. A manufacturing organization uses both a process costing method and a job order costing method to determine the cost, but for different scenarios. Process costing is used in case of standard production runs, where the cost is allocated to various processess and then allocated into the units produced. Whereas, Job costing is used when the organization takes up a special job , and the cost is allocated to that special job order, not the units produced. Hence, process costing is a continous process having closing stocks, WIPs but Job costing is a one time assignment which completes once the job is done. Job costing in other words is for unique products but process costing is mass production.

2. The objective of the two process is very similar which is that both the process are used for the objective of determining the cost. Both the process takes the accounting of the material, labour and anciliary cost to determine the overall cost. Both the process use similar methods of accounting such as Manufacturing overhead etc.

3. Yes these two methods are mutually exclusive.

4. Companies using process costing, The coca cola company for its famous coca cola drink. Lays for their potato chips.

Companies using job costing, the Boeing airplanes, Pwc for setting up an accounting tool for a company.

As per answering policy first 4 questions are anwered.