University of the People **We aren't endorsed by this school
BUS 3304
Nov 4, 2023
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Job Order Costing: Job order costing is a cost accounting system used by companies that produce unique, custom-made, or specialized products or services. It is characterized by the assignment of costs to specific jobs or projects, allowing for the tracking of costs associated with each individual job. Two categories of companies that adopt job order costing are: Custom Furniture Manufacturer: A custom furniture manufacturer produces unique pieces of furniture tailored to individual customer specifications. Each piece is considered a separate job, and costs such as materials, labor, and overhead are tracked for each specific order. Architectural Engineering Firm: Architectural engineering firms design and construct custom buildings or structures for clients. The cost of materials, labor, and other resources for each architectural project is tracked separately as a job. Process Costing: Process costing is employed by companies that produce large quantities of homogeneous or standardized products through a continuous production process. It calculates the average cost per unit by spreading the total costs of production over the number of units produced. Two companies that adopt process costing are: Beverage Manufacturer: Beverage companies, like those producing soda or bottled water, typically use process costing. They produce large quantities of uniform products, and the cost of production, including ingredients, packaging, and processing, is averaged across all units. Chemical Refinery: Chemical refineries often produce chemicals in a continuous, standardized process. The costs associated with refining chemical products are allocated on a per-unit basis, as they produce a large volume of the same product. Similarities between Job Order Costing and Process Costing: Both Track Costs: Both costing methods are used to track and allocate production costs, including materials, labor, and overhead. Allocate Overhead: Both methods allocate overhead costs to products, although the methods of allocation may differ (e.g., direct labor hours for job order costing and machine hours for process costing). Calculate Total Production Costs: Both methods calculate the total production costs incurred by a company, which can be useful for pricing decisions and financial reporting. Differences between Job Order Costing and Process Costing: Nature of Production: Job Order Costing: Used for custom or unique products or services where each job is different.
Process Costing: Used for standardized, homogeneous products produced in large quantities. Cost Accumulation: Job Order Costing: Accumulates costs for each specific job separately. Process Costing: Accumulates costs for a process or department as a whole and then averages them over the units produced. Unit Cost Calculation: Job Order Costing: Calculates the cost per unit for each job individually, based on the specific job's costs. Process Costing: Calculates the average cost per unit by dividing the total process or department costs by the total number of units produced. Application: Job Order Costing: Common in industries like custom manufacturing, construction, and service industries where each project or job is unique. Process Costing: Common in industries like food and beverage manufacturing, chemical processing, and textiles, where large quantities of uniform products are produced. In summary, job order costing and process costing are both valuable cost accounting systems, but they are used in different types of industries and for different production processes, with variations in cost accumulation and unit cost calculation methods. Reference: Heisinger, K., & Hoyle, J. B. (2012). Managerial Accounting. Creative Commons by-nc-sa 3.0. https://open.umn.edu/opentextbooks/textbooks/managerial- accounting
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