Question

Discussion Questions 1. What is the main factor for a company in choosing be- tween job order costing and process costing systems? Give two likely applications of each system. 2. The focus in a job order costing system is the job or batch. Identify the main focus in process costing. 3. Can services be delivered by means of process opera- tions? Support your answer with an example. 4. Are the journal entries that match cost flows to product flows in process costing primarily the same or much differ- ent than those in job order costing? Explain.

Answer 1

Answer 1. The main factors for choosing either job order costing or process costing are as follow:

For process costing- continuous, mass production
For job order costing- unique, specific, has an end, more expensive

2 Applications of job order costing are as follows :

a) Possible to appraise the job : Job order costing is the only way that companies can appraise the jobs that they are about to take up. In the absence of a job order costing system, companies will not have enough data to ascertain whether or not the job will be profitable. Job order costing system enables a company to make reliable estimates about the monetary values of materials, labor and overheads that will be spent while performing a job. A more efficient job order costing system enables companies to make quotes that are low enough to be competitive and high enough to be profitable.

b) Comparision of Re-work : Companies can use the job order costing system to find the jobs that they are competitive at and the ones that they are not. This system helps conduct in depth analysis such as cost of materials and even the cost of scrap and rework that has been done in the specific job. This cost information helps the company financially. But it also helps the company to streamline its operations. From the costs of scrap and rework, the causes of scrap and rework can be narrowed down and even eliminated. While implementing measures like six sigma and lean manufacturing many companies use the data collected as a result of job order costing.

2 Applications of process costing are :

a) Process costing deals with the flow of units and costs through several stages or operations. As such, when the homogeneous products are produced through continuous process, a process costing system is usually appropriate.

b) Process costing system is followed where there are at least two production processes.

Answer 2 :The main focus in process costing is on the production process. Process costing system is generally followed where there are at least two production processes

Answer 3 : Yes services can be delivered by means of process costing. Process costing deals with the flow of units and costs through several stages or operations. As such, when the homogeneous products are produced through continuous process, a process costing system is usually appropriate. The following are the examples of industries where process costing is applied : Chemical works, Steel, Soap making, Oil refining, Box making, Textiles, Distillation process, Rubber, Paper mills, Paints, Beer, Coke works, Ink and Varnishing, Meat products factory, Milk diary, Biscuit works, Food products, Canning factory.

Answer 4 : No, the journal entries that match cost flows to product flows in process costing are different than those in job order costing.

Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units. For example, the construction of a custom-designed piece of furniture would be accounted for with a job costing system. The costs of all labor worked on that specific item of furniture would be recorded on a time sheet and then compiled on a cost sheet for that job.

Whereas, Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. For example, the production of 100,000 gallons of gasoline would require that all oil used in the process, as well as all labor in the refinery facility be accumulated into a cost account, and then divided by the number of units produced to arrive at the cost per unit. Costs are likely to be accumulated at the department level, and no lower within the organization.