Essay On Job Costing And Process Costing

For the Unit Two assignment which involves Cost Flows: Job Order, Process Costing, and Activity-Based Costing (ABC), I will define job order costing, process costing. Then I will discuss how job order costing generally applies to customized products and projects and how process costing applies to a large batch manufacturing of identical products. Third, I will compare and contrast job costing and process costing systems.

Job order costing is a universally used system of accounting for tracking the cost of business by assigning a job (Walther, L. M. & Skousen, C.J. p. 64) to products that are vary from one product to the next. In doing so, companies could calculate the cost of raw material, labor, and overhead necessary to complete the specific

Process costing is utilized by a company that produces products that are similar or identical in a process that changes very little from one product to another. Most of the products suitable for job costing allocation utilize relatively simple manufacturing process and require only slight variation in the process description. A good example of a company that uses process costing is candy bar manufacturer, or a soft drink manufacturer where the product type and nature remains the same at all times although each is produced in batches of flavors and

Their similarities are first, both systems utilize the direct materials, direct labor, and overhead to track their cost. Secondly, both systems share the tracking method for their inventory of raw materials, their inventory of products in the process of manufacturing, and their inventory of products that are completed and ready for selling. Third, both systems costs and revenues are tracked by management by assigning a measuring unit (Saylor Academy, 2012).

Their differences on the other hand are in tracking the cost. In job costing each item is tracked by assigning jobs and its jobs tracking sheet or database while in process costing each item is tracked by assigning a process or a department where the tracking data is obtained from the process tracking sheet or from the department production database (Saylor Academy, 2012).

Without a clear understanding of the various cost allocation systems, a manager at any manufacturing facility will not be effective in running a successful company. Job costing method applies to complicated and custom products while process costing method applies to identical products that are usually produced in large batches. Both allocation systems have differences and similarities with which the manager must be