Job-order Costing and Process Costing Systems

Job-order Costing and Process Costing Systems

Job-order costing refers to a system in accounting that directly traces individual costs to a final job or service rather than the production department. Generally, this system is applied when individual prices are easily traceable to particular jobs. On the other hand, process costing is used for continuous production (Hansen et al., 2021). Process costing refers to an optimal costing system functional when a standard procedure is applied to produce identical products or services. Tracing costs to specific production units in process costing is challenging, unlike job-order costing. Also, process costing is commonly applied when items are produced in batches. However, both methods maintain the costs of direct materials, direct labour, and manufacturing overheads.

Job-order costing uses the average cost for indirect materials, indirect labour, rent, and depreciation, which can significantly affect the results of financial statements. Also, a job order utilizes a job order sheet that lists the requisition of materials and the amount of direct labour and overheads. These items are sometimes affected by events such as spoilage and rework, which affect financial statements. On the other hand, process costing records costs assigned to units produced or in operation in the inventory asset account, which appears in the balance sheet (Kraft et al., 2018). However, when the products are eventually sold, the costs are transferred into reports of the cost of sold goods, shown in the income statement, indicating an effect on the two financial statements. Get in touch with us at eminencepapers.com. Our homework help will save you the tons of energy and time required for your homework paper.

The manufacture of unique semi-trucks at the Peterbilt factory in Denton, Texas, is an example of job order costing. The company makes more than 100,000 special trucks twice without making the same truck (Graybeal et al., 2019). The costs for each car are accumulated separately. On the other hand, the production of doughnuts is an example of process costing in which one method produces many similar doughnuts.

References

Graybeal, P., Franklin, M., & Cooper, D. (2019). Principles of Accounting, Volume 2: Managerial Accounting. Houston, TX: OpenStax.

Hansen, D. R., Mowen, M. M., & Heitger, D. L. (2021). Cost management. Cengage Learning.

Kraft, A. G., Vashishtha, R., & Venkatachalam, M. (2018). Frequent financial reporting and managerial myopia. The Accounting Review, 93(2), 249-275.

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The type of product a company produces affects the accounting system needed to determine product cost. The two most common costing systems are job order and process costing.

Job-order Costing and Process Costing Systems

Respond to the following in a minimum of 175 words:

Compare and contrast job-order and process costing systems. How can events in a job-order costing system affect financial statements? How can events in a process costing system affect financial statements? Provide specific examples for each type.