Job order costing is an expense management technique in which a company only develops products to meet customer orders, the process of flowing costs and income for a specific job. Each job order cost sheet is filled out by employees, and costs are often divided into three groups: direct materials, direct labor, and manufacturing overhead. Many companies use job order costing, such as manufacturing, construction, medical services, and retail companies. Business order costing may be used by companies in a variety of sectors, and it can be applied to a variety of product and service offerings. This method is useful for tracking and comparing business expenses to see if future tasks might be more cost-effective. There are two examples of companies that commonly use job order costing: Custom Furniture Manufacturers: Companies that produce custom furniture pieces, such as tables, chairs, and cabinets, often use job order costing. Each piece of furniture is unique and requires different materials, labor, and overhead costs, making it necessary to track costs on a per-order basis. Construction Companies: Construction companies undertaking projects such as building homes, office buildings, or infrastructure projects use job order costing. Each construction project is unique and involves various materials, labor, subcontracting, and other expenses, which are tracked separately for each project. Process costing is a cumulative cost when many conformations and modules are created or even produced. Types of Companies That Use Process Costing Project pricing is a popular method in the construction industry because expenses fluctuate greatly from project to project. Companies that use the costing process are Chevron, which is Petroleum Materials. Construction projects need a wide range of resources, including employees and a variety of materials and equipment. Calculating the exact cost of each input for a particular activity can be difficult. Construction management cost strategies need on-the-job staff and accurate data. Two examples of companies that use process costing are: Food Manufacturers: Companies that produce items such as beverages, packaged snacks, or canned goods often use process costing. The production process involves a series of continuous steps where components are combined, processed, and packaged. Chemical Manufacturers: Companies that produce chemicals, such as fertilizers, paints, or industrial chemicals, often use process costing. Production involves a series of chemical reactions and transformations where inputs and outputs are measured in large quantities or volumes. Heisinger & Hoyle (2012) identified key similarities:
• Both job and process costing methods have a similar goal of determining the cost of products through direct materials, direct labor, and manufacturing overhead. • Management requires the use of unit cost information as the basis for decision-making. • Both job costing and process costing have inventory accounts, which include raw material inventory, work-in-process inventory, and output inventory. • Both job and process costing methods have similar cost flows. Hence, cost accountants record production in separate accounts for material inventory, labor, and overhead. Heisinger & Hoyle (2012) identify important differences: • Product costs are assigned to departments (or processes), while product costs are assigned to functions. • Unit cost facts come from the department's production cost report. Conversely, unit cost facts are derived from the job cost sheet. • Some miscellaneous financial records are used for work-in-progress inventory - one record for each operation, and conversely, one work-in- progress inventory account is used. Therefore, the costs allocated to each job are tracked through job cost sheets. 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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