Question

1.what is the meaning of job order costing?

2. why is job order costing important for managerial accounting?

3.how do manufacturing companies use job order and process costing systems?

Answer 1

1) Meaning of job order costing: Cost accounting refers to accounting all costs associated with producing products or rendering services. Method of cost accounting followed by a firm varies based on nature of products or services they deal with as well as industry in which firm carries out its business operations. One of the methods used in cost accounting is job order costing. It means that accumulating job-wise costs associated with the jobs being carried out. In simple terms, costs for each job are accumulated and reported so that total of all job costs will result in total costs incurred during the reporting period concerned. 2) Importance of job order costing for managerial accounting: Mangerial accounting is one of the branches of accounting where emphasis is placed on carrying out managerial activities such as capital investment decisions, decision making in terms of continuing or dropping a product line, starting up a new business or adding a new product line, etc. Job order costing is useful in the management accounting in terms of deciding whether to take up similar type of jobs in future or not because management can easily evaluate any job's profit- earning capacity with the help of job order costing. Job order costing helps the management in terms of quoting contract price for long-term projects where each project shall be considered as job for this purpose.

3) Manufacturing companies use job order and process costing systems: Manufacturing companies use job order accounting if their products and services are not identical in nature. That is, if each product requires unique set of works to complete the same, manufacturing companies use job order costing. On the other hand, manufacturing companies use process costing if their products require similar process to product final output. In general, manufacturing companies that deal with identical products use process costing as one process of manufacturing will be used to produce a number of units of output which are identical.