Question

WHAT is process costing and WHY is it important? (at least 4 sentences each)

WHAT is job ordering costing and WHY is it important? (at least 4 sentences each)

WHAT is OH application and WHY is it important? (at least 4 sentences each)

Answer 1

As the name suggests process costing is a method of ascertaining cost of each process. It helps to determine the cost of each process and of final product in short periods. It is useful for industries/business which engage in uniform production of products and cannot be differentiated. The average cost in such case can be easily determined and price quotation can be submitted easily because of the standardization. Since the data is promptly available it helps in performance analysis and managerial control.

Job costing is a method of costing where amount of work is determined by the number of jobs completed. It helps the management in estimating the cost of a particular job based on the cost of prior jobs. It further helps to focus on profitable jobs and reducing/eliminating the non profitable jobs. It provides detailed information with regards to each department and customer needs are met on the go. It also helps in evaluating the quality of work and further assessing the performance of employees.

Overhead application is recorded in cost accounting where a fixed rate is charged to specific job or department. It is allocated according to specific calculation. What may be charged and what may be actually incurred may not be corelated. Eg. Factory overhead is applied based on the machine processing time. It is helpful in record keeping. The actual overhead does not take into account all the factors but pretermined overhead application takes all the factors into account.