Question

Chapter 19: Job Order Costing Requirement 1: This week we are studying job order costing. In order to better understand what job order costing is, you will also need to have a basic understanding of process costing. Please briefly explain these two types of costing systems and provide us with an example of a real-world company that would use job order costing and one that would use process costing. Requirement 2: Please distinguish between prime costs and conversion costs and provide us with an example of each. Requirement 3: Please explain the difference between a prime cost and a product cost and provide us with an example of each.

Answer 1

1.Ans

JOB ORDER COSTING	PROCESS COSTING
CALCULATING THE COST OF SPECIAL CONTRACT, WORK WHERE WORK / ORDER BASED ON CUSTOMER REQUIREMENT	TO ASSERTAIN THE COST OF PRODUCT AT EACH STAGE / PROCESS
CUSTOMISED PRODUCT WILL BE PRODUCED BASED ON CUSTOMER REQUIREMENT	STANDARDIZED PRODUCTION
COST CENTER IS JOB	COST CENTER IS PROCESS
NON TRANSFERABLE COST	COST IS TRANSFERED FROM ONE PROCESS TO ANOTHER
ACCOUNTING FIRMS, LAW FIRMS, HOSPITAL BECAUSE SERVICE IS BASED ON CUSTOMER REQUIREMENT	MANUFACTURE OF PENCILS, PROCESSED FOOD
DELOITTE & TOUCHE (accounting) LOCKHEAD MARTIN (advanced technology systems)	CHEVRON CORPORATION(petroleum products) PITTSBURGH PAINTS

2Ans :

prime cost	conversion cost
sum of direct material and direct labour	sum of direct labour and material overhead
It includes only material and labour that to directly related to product	It includes cost incurred for converting raw material into finished product labour cost, rent, salary, depriciation,tax, electricity expenses
ex: direct material =50 direct labour = 25 material O.H = 40 PRIME COST =50+25 = 75	ex: direct material =50 direct labour = 25 material O.H = 40 CONVERSION COST = 25+40 = 65

3Ans :

PRIME COST	PRODUCT COST
sum of direct material and direct labour	In addition to prime cost and manufacturing overhaed it also includes administration expenses
Qn: material purchased= 150000 direct labour = 50000 direct expenses= 20000 factory expenses = 15300 office& admin expenses = 8000 selling and distribution expenses = 7000	Qn: material purchased= 150000 direct labour = 50000 direct expenses= 20000 factory expenses = 15300 office& admin expenses = 8000 selling and distribution expenses = 7000
prime cost = direct material + direct labour +direct expenses    =150000+50000+20000 =220000/-	product cost = prime cost+ MOH+admin expenses = 220000+15300+8000 =243300/-

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