Question

In what ways are job-order and process costing similar? How do they differ? Under what conditions would it be more appropriate to use a job-order costing system? Under what conditions would it be more appropriate to use a process costing system?

Answer 1

SIMILARITIES

• Both job and process cost systems have the same goal: to determine the cost of products
• Both job and process cost systems have the same cash flows .Accountants record the production in seperate  account for materials inventory ,labour, and overhead.then they transfer the costs into work in process account.
• Both job and process cost systems use predetermined overhead rates to apply overhead.

DIFFERENCES

• Types of products produced .Companies that use job cost work on many different jobs with different production requirements during each period.Companies that use process costing produce a single product ,either on a continuous basis or for long periods .All the products that the company produces under the process costing are the same .
• Cost accumulation procedures. Job costing accumulates cost by individual jobs . Process costing accumulates cost by process of department.
• Work in process inventory accounts. Job cost system have one work in process account for each job. Process cost systems have a work in process inventory account for each department of process.

THE JOB ORDER COSTING IS USED when the various items produced are sufficiently different from each other and each has a significant cost .When a companies output consist of continuous flow of identical ,low cost units , the process costing system is more appropriate.

PROCESS COSTING IS APPROPRIATE for companies that produce a continuous mass of like units through a series of operations or process .Also ,when one order does not affect the production process and a standardization of the process and product exist.