Job Order and Process Costing

Job order costing is one of the traditional accounting approaches used in managerial accounting. Businesses utilize this approach in situations where they deliver a unique product or job to their customers. One of the key elements of the job order costing system is that every customer is treated uniquely; hence, products or jobs are customized to suit their individual needs. A good example is when a law firm charges a client a specific amount of money to deliver certain services: Job Order and Process Costing.

Although two different clients may approach the same law firm for similar services, whatever the law firm will deliver and the specific client needs determine the corresponding costs. Businesses leverage job order costing to determine whether a job is profitable before committing to it. Among others, it helps the business to determine the value of materials, labor, and overheads that may be required to complete the project (Blocher et al., 2022).

On the other hand, process costing refers to a typical accounting approach used by companies that produce homogenous products en masse. This accounting approach is utilized most in manufacturing industries where the cost of producing output units is similar; hence no need to track the cost for every output unit (Blocher et al., 2022). For instance, oil companies produce millions of gallons of fuel every day, making it cumbersome to track the cost of producing a few units of fuel.

Besides, food companies that produce multiple snacks a day may not be able to track the production cost at each step of the manufacturing process; hence the need for determining the cost of the entire process from the outset. Companies that produce homogenous products require their departments to determine the cost of their relevant production functions, and a report is subsequently prepared to determine the aggregate cost.

Examples

Job Order Costing

Job order costing is mostly applied by businesses in the manufacturing industry. Companies in the manufacturing sector leverage this costing approach to control the utilization of production factors such as working hours and production inputs (Greenberg & Schneider, 2010). Every order made by a customer is considered a separate order to facilitate job order costing. To that end, a single customer order may be broken down into different orders to facilitate effective costing.

Alternatively, the business may group different low-value projects into a single job (Greenberg & Schneider, 2010). Grouping jobs depends on the company’s size. For instance, a customer order worth $5,000 may be considered to be a single job. In the same breath, smaller customer orders may be grouped into blocks of $5,000 for effective costing.

Additionally, this costing approach is applied in healthcare service businesses such as hospitals and medical billing. To that end, every patient or their service bill is considered unique. Notably, job order costing in medical businesses is complex compared to that in other organizations because of the wide range of services offered by these companies.

In this regard, medical services businesses must maintain a clear record of costs under every service offered (Cokins, 2002). For instance, individual patients are assigned bills based on the purpose of their hospital visit or the cost of the healthcare service they receive.

Process Costing

As mentioned earlier, process costing is used by businesses that produce identical products whose production process involves a continuous flow of processes. A good example is Coca-Cola Company which utilizes this method to determine the cost of the entire process that results in the manufacture of specific beverages.

This aligns with an element of organizations that use process costing, which is organizations that produce massive units of a homogenous product consistently (Kim et al., 2015). The company introduces direct materials in the production operation in the first department. Based on the production stage, the final product of the preceding production stage becomes the input for the subsequent production phase.

Another organization that utilizes process costing is Pepsi. The company utilizes this costing system because it produces a large amount of soft drinks through a continuous process. To that end, assigning unit costs is based on the average production costs rather than considering specific jobs (Akyol et al., 2007).

This approach to costing helps the company control overall costs because the cost of producing each batch of soda is known from the outset (Akyol et al., 2007). Besides, other processes like mixing ingredients and bottling are considered part of the entire process and not individual jobs.

Biblical Integration

The utilization of job order and process costing approaches have biblical backing. One of the biblical principles that justifies the usage of job order and process costing approaches is the need for stewardship. This principle requires that resources be used efficiently to attain the organizational goal for which they are meant. By leveraging the two costing methods, organizations stick with pre-determined standardized costs, avoiding wastage in the process.

This also means that it is possible to charge customers fair prices because costs are controlled. Besides, the two costing approaches align with the biblical principle of diligence, ensuring that resources are used for the right purposes. By leveraging the two approaches, organizations ensure that every aspect of production is accounted for.

References

Akyol, D. E., Tuncel, G., & Bayhan, G. M. (2007). A comparative analysis of activity-based costing and traditional costing. World Academy of Science, Engineering and Technology, 1(3), 136-139. https://doi.org/10.5281/zenodo.1078261

Blocher, E., Juras, P., & Smith, S. (2022). Cost management: A strategic emphasis (9th ed.). McGraw Hill.

Cokins, G. (2002). Activity-based cost management: An executive’s guide. John Wiley & Sons.

Greenberg, R. K., & Schneider, A. (2010). Job order costing: A simulation and vehicle for conceptual discussion. Academy of Educational Leadership Journal, 14(3), 39-57. https://f01.justanswer.com/0VE6JZp9/JOB+ORDER+COSTING_+A+SIMULATION+AND+VEHICLE+FOR+CONCEPTUAL+DISCUSSION.pdf

Kim, S., Ko, W., & Bang, S. (2015). Analysis of unit process cost for an engineering-scale pyroprocess facility using a process costing method in Korea. Energies, 8(8), 8775–8797. https://doi.org/10.3390/en8088775

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Essay: Job Order and Process Costing Assignment Instructions

Prepare a 825-1,000-word essay using Microsoft Word providing an overview of job order and process costing systems, including the characteristics and types of organizations that would use the costing systems to help support the leader’s competitive strategies. Provide 2 examples of organizations that would use job order costing and 2 examples of organizations that would use process costing.

In addition, explain how each costing system is used in each organization selected. Please remember that job order and process costing are distinct from one another and typically focus on manufacturing companies. In addition, activity-based costing is not a type of job order or process costing.

The essay must have a minimum of 825 words and a maximum of 1,000 words. The objective is to learn how to synthesize course material in a clear and concise manner.

Include a biblical integration of an organization’s use of the different costing systems.

Current APA formatting must be followed, excluding an abstract and table of contents.

Cite the course textbook and at least 4 scholarly articles from professional accounting and business journals. Wikipedia, Investopedia, and other popular sources are not considered scholarly sources and should NOT be used. Articles from websites are good supplemental resources, but the bulk should come from scholarly journals.

Please be sure to review the Online Writing Center’s webpage, “Choosing Appropriate Resources for Academic Papers,” as it specifically outlines Liberty University’s acceptable resources. The Assignment description in Canvas provides a link to the Online Writing Center.

There is only 1 submission attempt for this assignment.

Note: Your assignment will be checked for originality via the Turnitin plagiarism tool.