Traditional Costing (ABC), And Traditional Job Order Costing

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JOB ORDER COSTING 2
There are two general approaches to allocating costs that are not direct costs associated with producing a product or rendering a service. These approaches are activity-based costing (ABC) and traditional costing. The former is effort-intensive but more accurate as it identifies the associated cost per activities involved in the production or service and used this information to assign the cost of the finished product or service. The latter, on the other hand, used an average rate that is derived from estimating a pooled indirect cost for a certain period (e.g. year-long time frame) and spread this cost to a chosen cost-driver parameter such as man-hours or machine-hours (“Difference Between Activity-Based Costing and Traditional …show more content…

From a manufacturer’s perspective, mathematically, job order costing can be represented by summing the cost of material, cost of labor and a calculated overhead allocation and divide the sum by the number of units produced (Kent, 2012).
Though it is a simple formula, the hard part is to track the material, labor, and overhead accurately. The calculation of the overhead allocation would look like as follows:
The cost driver or allocation base could either be labor hours or machine hours depending on the company’s cost driver structure (CFI, “What is Job Order Costing?”, n.d.).
JOB ORDER COSTING 3
Process Costing
This methodology is a variant of job order costing, however, this one involves large quantities of orders that would otherwise impractical if will be dealt using job order costing. Continuous mass production through one or more processes of identical units can be dealt in terms of batches, thus, companies tracks cost associated to these processes or departments (Garcia, 2017). Mathematically, process costing can be represented by summing cost of material, cost of labor and a calculated overhead allocation in a department under consideration and divide the sum by the number of units produced in a batch (Kent,

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