Question

Job-Order Costing versus Process-Costing

1. Job-order costing and process costing have the same basic purpose.What is this purpose?

2. Explain under what conditions it would be appropriate to use a job-order costing system, and under what conditions would it be appropriate to use a process costing system. In your answer, include an example of a company (industry) that would use job-order costing, and a company (industry) that would use process costing.

3. The major difference between job-order costing and process costing is in how product costs are accumulated. Explain how costs are accumulated in job-order costing, and how costs are accumulated in process costing.

Answer 1

Answer 1:

Same Basic purpose : To determine the cost of the product.

Answer 2:

Conditions of job-order costing system: It is useful in businesses which only manufactures products to fullfill customers/ clients order. Seperate job order cost sheet are made for each seperate order.
Example: law firms, accounts firm, etc.

Conditions of process costing system: This method is generally used in manufacturing industry to calculate the total production cost of a unit. It mainly used where industries having various cost centers.
Example: Chemical processing industry, oil refining industry, etc.

Answer 3:
In job order costing system cost is accumulated on per job basis i.e. cost is calculated for a particular job.
In process costing system, cost is accumulated by process or department i.e. cost is calculated for each process or department involved in making a product.