Question

1.Part (a): Distinguish between the two types of cost accounting systems.

Part (b): May a company use both types of cost accounting systems?

Part (c): What type of industry is likely to use a job order cost system? Give some examples and what type of industry is likely to use a process cost system? Give some examples.

2.Using your own examples, work experience, or observations you might have, please discuss how job order cost information is used in decision-making. What are some possible reasons that actual cost of materials would exceed expected costs for a job? again, please share with your examples.

3.Discussion posting instruction: please explain your own rationale of your answer choice (out of the 5 option choices at below), in other words, why did you choose your option choice and plus please explain why then, you did not choose the other 4 options as your choice. Please state your own rationale of not choosing each of those 4 options as "incorrect" to the question.

Here is the one multiple-choice question:

When using the weighted-average method of process costing, total equivalent units produced for a given period equal:

1. The number of units started and completed during the period plus the number of units in beginning work in process plus the number of units in ending work in process.
2. The number of units in beginning work in process plus the number of units started during the period plus the number of units remaining in ending work in process times the percentage of work necessary to complete the items.
3. The number of units in beginning work in process times the percentage of work necessary to complete the items plus the number of units started and completed during the period plus the number of units started this period and remaining in ending work in process times the percentage of work necessary to complete the items.
4. The number of units transferred out during the period plus the number of units remaining in ending work in process times the percentage of work necessary to complete the items.
5. None of these.

Answer 1

1. (a) There are mainly two types of cost accounting system, that are job costing and process costing. I am showing difference between job costing and process costing.

Basis of Distinction	Job Costing	Process Costing
Production	Production is against specific orders.	Production is in continuous flow; the products being homogeneous.
Entity	Each job is separate and independent of others.	Products lose their individual entity as they are manufactured in a continuous flow.
Cost Determination	Costs are determined for each job separately.	Costs are complied for each process for department on time basis for production of a given accounting period.
Suitability	It is suitable where the goods are made according to customer’s orders, production is intermittent and customers’ orders can be identified in the value of production.	It is suitably employed where goods are made for stock and production is continuous or goods although made to customer’s order are, owing to the continuous nature of the production, lost sight in the volume of the production.
Unit Cost	Total cost of the job is divided by the number of units produced in the job in order to calculate unit cost of the job.	The total cost of each process is divided by the total production for the process to calculate the average cost per unit for the period.
Control	Proper control is comparatively difficult as each product unit is different and the production is not continuous.	Proper control is comparatively easier as the production is standardized and is more stable.
Transfer	There are usually no transfers from one job to another unless there is a surplus work or excess production.	Transfer of costs from one process to another is made, as the product moves from one process to another.
Cost Calculation	Costs are compiled when a job is completed.	Costs are calculated at the end of the cost period.
Work-in-progress	There may or may not be work-in-progress at the beginning or end of the accounting period.	There is always some work-in-progress at the beginning as well as at the end of the accounting period.
Forms and details	It requires more forms and details regarding materials and labor due to the need for the allocation of labor to so many orders and material is issued in bulk to departments.	It requires few forms and less details but a closer analysis of operations is needed.

                (b) In which industry products are both mass-produced and customized they use hybrid costing, which is combination of both job and process costing, to analyze the cost of producing the product. Take the example of Mercedes Company; it produces cars model which is itself mass-produced. This makes production of cars preferable for process costing system. But the cars also can be available as customize according to customer’s demand this system makes this preferable for job costing.

(c) Job costing is used in industry where the cost is compiled for a specific quantity of products, equipment, repair or other services that moves through the production process as a continuously identifiable unit, applicable material, direct labor, direct expenses and usually a calculated portion of overheads being charged to a job order.

Ex: - Movie production, Law firms, Accounting firms, Hospitals, Customized furniture industry etc.

Process costing is used in which industry huge volumes of similar products are made. In these industries entire process is divided into small processes where the work is performed in a continuous process. The output of one process is the input for another process and at the end of the processes, the final output or product is created.

Ex:- Chemical works, Soap making, Box making, Distillation process, Paper mills, Biscuits firms, Oil refining, Food products, Coke works, Meat products factory, Milk or dairy products etc.

2. Job costing is useful for decision-making for the following reasons:-

• It provides a detailed analysis of cost of materials, wages, and overheads classified by functions, departments and nature of expenses which enable the management to determine the operating efficiency of the different factors of production, production centers and functional units
• It enables the management to ascertain which of the jobs are profitable than the others, which are less profitable and which are incurring losses
• It provides the basis for estimating the cost of similar jobs taken up in future and thus helps in future production planning
• Identification of spoilage and defectives with the respective production orders and departments may enable the management to take effective steps in reducing these to the minimum