Job costing, which is also referred to as job order costing is a system in which manufacturing costs are assigned to a specific product or a batch of products, to ease the process of tracking expenses for the managers. These products are otherwise known as jobs. This system is used only when the merchandise being poduced are significantly different from each other. It is also appropriate in situations where products and services are produced upon receipt of customer order and according to customer specifications. H & R Block and HCA Healthcare are some of the companies that are inclined to job costing systems.
Job costing systems are characterized by certain features. First is the cost flows. Companies match the flow of costs to the physical flow of products through the production process, from raw materials, work-in-progress, to finished goods. The company deducts their costs in every stage to determine the cost of the products at the end of the production process. Second, this system keeps a separate record for each job thus making it easy to calculate the profit amounting from that particular job. Also, factory overheads are applied in normal costing and charged to the job in the job account. All jobs are recorded for job cost sheet to the job account, and on completion, all expenses associated with the job are calculated to give the full cost of the job/product.
Other characteristics include each job follows its specifications depending on the preference of the client. Therefore, there is no uniformity in the flow of production from one department to another. Each job is treated as a separate cost unit and traced separately.
Process Costing Systems
Process costing is a system that is used to assign manufacturing costs to units produced. The system is to determine the cost of a product at every stage of manufacture. Process costing system is used where there is a mass production of identical or relatively homogeneous products. The system makes it efficient to determine the total production cost of each unit of every merchandise at every stage. Companies likely to use process costing systems include those manufacturing paint, grinding flour, and oil refineries. Good examples are the Sherwin William Paints and Tyson Foods.
Process costing system has its unique characteristics different from job costing systems. The key feature is the mass production of homogeneous products. This makes production accumulated and reported by departments. In this system, costs are captured in departmental work-in-progress accounts. Also, a cost for damaged or lost products is added to the cost of acceptable units completed thus no cost is left unaccounted. Additionally, the total cost charged to a department is divided by the overall calculated production of the department to determine a mean cost for a specified period. Finally, process costing system transfers the cost of finished goods of a department to the proceeding production department so as to arrive at the final total costs of the finished goods in a particular period.
In conclusion, industries are guided by the type of operations they engage in to make a decision between job costing systems and process costing systems. If a company is involved in a routine production of goods and services, it is advisable to employ process costing systems, and in situations that a company is involved in non-routine operations, they are fit for a job costing system.
DRURY, C. M. (2013). Management and cost accounting. Springer. https://books.google.com/books?hl=en&lr=&id=l2gFCAAAQBAJ&oi=fnd&pg=PR19&dq=job+costing+system&ots=EsFjvunznU&sig=kwFUR54COEra7abypdxTPYFJNEA
Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2010). Managerial accounting. Issues in Accounting Education, 25(4), 792-793. http://www.aaajournals.org/doi/pdf/10.2308/iace.2010.25.4.792
Olsen, L., Saunders, R. S., & Yong, P. L. (Eds.). (2010). The healthcare imperative: lowering costs and improving outcomes: workshop series summary. National Academies Press.
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