Question

What are the major differences between job-order costing and process costing systems? Give an example of a well-known company that might use job-order costing and an example of a well-known company that might use process costing. Explain why you have chosen the companies that you did, specifically why job order costing or process costing are used. Do not choose companies that your classmates have already commented upon. Participate in follow-up discussion by critiquing your classmates' choices of companies.

Answer 1

these descriptions of job costing and process costing, we can arrive at the following differences between the two costing methodologies:

Uniqueness of product. Job costing is used for unique products, and process costing is used for standardized products.

Size of job. Job costing is used for very small production runs, and process costing is used for large production runs.

Record keeping. Much more record keeping is required for job costing, since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.

Customer billing. Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.

Examples of companies that use job costing systems include Boeing (airplanes), Lockheed Martin (advanced technology systems), and Deloitte & Touche (accounting).

A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. Examples of companies that use process costing include Chevron Corporation (petroleum products), the Wrigley Company (chewing gum), and Pittsburgh Paints (paint).