Question

: Different costing methods provide companies with different options for categorizing and calculating costs. Managers and cost accountants should understand the differences between costing methods so that they can choose and properly implement the method that best suits their needs for decision making. For this short paper, you will compare the characteristics of job costing and process costing methods and give examples of when and why each might be used. You will also address the use and benefits of costing for service businesses. Prompt: Review Chapter 4 in the textbook and the Job Order Costing vs. Process Costing video to support your work on this short paper. Specifically, the following critical elements must be addressed:  Job Costing vs. Process Costing: Characteristics: Compare the characteristics of job costing and process costing. Consider how each method impacts the accounting work involved.  Job Costing vs. Process Costing: Example: Select a company of your choice and explain when they might use job costing and when they might use process costing. Cite your work and include sufficient detail.  Service Industry Costing: Differences: Explain why costing methods used in the service industry are different from those used in the manufacturing or merchandising industries.  Service Industry Costing: Benefits: Select a service industry company of your choice that uses costing and explain the benefits of costing for service companies. Cite your work and include sufficient detail.

Answer 1

Characteristic

Job Costing – This costing method mainly applicable for Job specific. This costing method consider direct Material, Labour and Overhead cost to complete one Job and transfer to Cost of Goods sold position .

Specially in Manufacturing unit – We used job specific costing to derived cost of the product ( input cost). This is relates to Unique Product base .

Process costing – This method of costing mainly applicable for produce similar or unique nature product in batch wise . Process costing normally follow a path in production unit – like The output of process A became input of Process B and this input/output process will continue till the time final output is not getting ready . normally at Month end , cost of each process should matched .

Impact on Accounting :

Job costing – As explained above , job costing is very specific product base costing . Job costing mainly consist of Material , Labour and Overhead. To determined actual cost incurred at each job level, then this is the best . To determined cost, control the cost , do variance analysis of cost etc. With the help of Job costing , Cost Accountant can able to make track on each job wise cost and identify any cost overrun and reason for the same .

Process costing- As explained above Process costing mainly applicable for huge production and to complete production it should complete a lengthy process . As mentioned above , input of one department = Output of other department , so on,..

Most important factor to note – under process costing , entire process that is Costed. Cost per unit = Cost of Input /Expected output in units . Couple of basic costing terminology is being connected with process costing :

1. Normal loss , 2) abnormal loss –loss occurred over and above Normal loss , 3) Work in Progress 4) Scrap value

Industry – Company Selection –

Example of any Manufacturing company where Job costing incorporated. Established proper control on Material , Labour , Job costing always highlight cost system / methodology of individual job . Where as Process costing is represent cost of a process , division , department and cover mainly lengthy / large process .

Customer Billing system based on Job costing , Size of manufacturing unit – Job costing system is the best , Unique product – job costing is the best .

Difference between Service Industry costing vs Manufacturing unit :

Service Industry – costing mainly costing of Labour wages + Overhead . Very less impact of material cost .Where as a manufacturing companies cost of goods manufactured consist of Material + Labour + overhead . In service sector and manufacturing sector major difference is Inventory . In service sector no concept of storing ,assembling concept .We normally follow Job , process costing in service sector ,

Service Industry now a days started considering costing system to determine cost of the product and service provided to customer. In service sector , major cost relates to Overhead cost and allocation of overhead cost towards product is very important. Presently Service industry adopting Value chain approaches and cost accounting to develop costing approach. With help of this approach , allocation of fixed and overhead cost should be in a systematic basis . Now Job , Process and Hybrid base costing system started in Service industry to make proper control on Overhead cost , Labour cost which all directly relates to service specific .