A job order costing system would be more appropriate than a process costing system for manufacturers who use different types of goods throughout the manufacturing process. Process costing is best to you when manufacturing a large amount of the same items.
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Process Costing
Job costing or as some may know it, Job order costing is fundamental to managerial accounting. It differs from Process costing in that flow of cost is tracked by job but not a process. The main difference is that Job costing is in the nature of jobs/work and process costing in a process.
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The inventory costing method that reflects the cost flow in the reverse order and will report the earliest costs in ending inventory is last in first out. This makes use of a perpetual inventory system.
Job order costing is more appropriate than process costing when the product being produced is a custom product
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Process Costing
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Job costing or as some may know it, Job order costing is fundamental to managerial accounting. It differs from Process costing in that flow of cost is tracked by job but not a process. The main difference is that Job costing is in the nature of jobs/work and process costing in a process.
Job Order Costing Operation Costing Normal Costing Actual Costing Standard Costing Kaizen Costing Target Cost
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In a process cost system, a production cost report is prepared by management for management. The purpose is to determine the efficiency of the production operation and examine cost reducing alternatives. An example of a business that would use a process cost system would be a manufacturer that continuously produces a homogeneous product. For example, a soda bottling company produces the same product day after day. The costs associated with producing that product include the raw materials or ingredients, direct labor and factory overhead. This is contrasted with the cost system used by a printing company. In the latter case, the company would use a job order costing system. The job order costing system would specify the costs associated with producing a particular job order. In the example of a printing company, there would be a set-up charge that would depend on the work involved in preparing the job.
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The inventory costing method that reflects the cost flow in the reverse order and will report the earliest costs in ending inventory is last in first out. This makes use of a perpetual inventory system.
Job Order 1. Many different jobs are worked during different periods 2. Costs are accumulated by individual jobs 3. Job cost sheet is the key document controlling the accumulation of costs by a job 4. Unit costs are computed by the job on the job cost sheet while comparing these characteristics with Process costing we find that: Process costing 1. A single product is produced either on the continued basis or in the long periods 2. Costs are accumulated by departments 3. Department product report is the key document 4. Unit costs are computed by departments
Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units. For example, the construction of a custom-designed piece of furniture would be accounted for with a job costing system.Process Costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. For example, the production of 100,000 gallons of gasoline would require that all oil used in the process, as well as all labor in the refinery facility be accumulated into a cost account, and then divided by the number of units produced to arrive at the cost per unit.