Question

A. Compare the characteristics of job costing and process costing. Consider how each method impacts the accounting work involved.

B. Select a company of your choice and explain when they might use job costing and when they might use process costing. Cite your work and include sufficient detail.

C. Explain why costing methods used in the service industry are different from those used in the manufacturing or merchandising industries.

D. Select a service industry company of your choice that uses costing and explain the benefits of costing for service companies. Cite your work and include sufficient detail.

Answer 1

A. Process costing means the cost per unit for the process and job costing means the cost of a job undertaken. The company may have various process for its finished goods hence taking costing of each process is process costing. The company may undertake various assignments of clients when cost for each such assignment is derived its product costing. The process costing is different from job costing, the type of costing undertaken depends on the nature of the industry and company.The company may undertake both costings also however its relevance depends on the purpose

B. The company that does not produce uniform products for all clients undertakes job costing whereas the company that sells uniform products to all customers undertakes process costing. The reason for the same is that in case of job costing the process for each products/job undertaken may be different hence it becomes difficult to use process costing

For example a FMCG producing company like Nestle shall use process costing as it does not have customised products whereas the company like Event planner shall undertake job costing as its all services are customized as per client needs

C. The service industry usually uses Job costing and manufacturing industry uses Process Costing, this is because in service industry it offers customized services as per customer needs whereas in manufacturing industry the products are uniform

D.The service industry like Deloitte shall be using Job costing as it shall be using manhour and services based on needs of customer, it cannot use process costing as then it would result in losses in some projects. For example if Deloitte is undertaking work which needs 50 manhours then if it pays manhour at Rs.50 per hour then its expense would be Rs.2500 and then it shall add the profit margin on the cost accordingly