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

1. Job order - Applied when there are custom orders, heterogeneous product, low product volume and low to medium standardisation. Applies direct materials, direct labor and overhead to specific jobs.

Process Costing - Applied when there are repetitive  products, homogeneous product, high product volume and low to high standardisation. Applies direct materials, direct labor and overhead to specific processes.

2. The main focus is the process.

3. A process system is a system where mass production is done of identical products. The cost of each unit is the total cost divided by the number of units produced. Yes, services can also be delivered by means of process flow operations. In an airline industry, some people deal with ticketing, some with baggage handling and some are air hostess. Everyone has homogeneous nature of work and repetitive in nature. Hence, with this example I conclude that along with manufacturing industry, service industry also uses process flow operations.

4. The journal entries to match cost flows to product flows are generally same in process costing and job order costing. In process costing, materials enter into the production and direct labor is applied to the product. Also, factory overhead is applied to each production department. This similarly applies to each job in job order costing.