Question

Job Order and Process Costing

a.Select two (2) of the following types of companies and explain whether each would use job order or process costing. Be sure to explain and support your answers.

1.A law firm

2.An oil refinery

3.A soda manufacturer

4.A custom-home builder

b.For each of the two types of companies selected above, give at least one example each of the following costs each company might incur. Fully explain your examples.

1.Direct material

2.Direct labor

3.Manufacturing overhead

4.Selling and administrative expense

Answer 1

Solution:

First of all we need to understand the Job Costing and Process Costing.

Job Costing

- Under Job Costing the costs of each specific job is calculated.

- The orders are ascertained which are not comparable with each other.

- In this method of costing work is performed on the basis of requirement of customer for each job.

- Each customer’s job has different requirement.

- Industries where this method of costing is generally applied are printing press, automobile garage, repair shop, ship-building, house building, engine and machine construction, etc.

Process Costing

- Process costing is used to calculate the cost of process or product where a product passes through distinct stages or processes,

- The output of one process being the input of the subsequent process,

- It is frequently desired to ascertain the cost of each stage or process of production.

- This method is used where it is difficult to trade the item of prime cost to a particular order because its identity is lost in volume of continuous production.

- Process costing is generally adopted in textile industries, chemical industries, oil refineries, soap manufacturing, paper manufacturing, tanneries etc.

Now, we can answer the which type of costing use in different type of companies

1) A Law Firm ---- A law firm performs task related to suites and law matters as per the customer’s requirement. Hence JOB COSTING is used in this type of company.

2) An Oil Refinery --- PROCESS COSTING

In oil refinery crude or raw oil is processed and converted into petrol, kerosene oil, diesel etc.

So oil refinery requires a process costing method in order to find out the cost of product after each process.

3) A soda manufacturer --- PROCESS COSTING

Process costing is adopted where it is difficult to trade the item of prime cost to a particular order because its identity is lost in volume of continuous production.

4) A custom – home builder --- JOB COSTING

Home builder make homes of the customer on their specific requirements, design and preference.

So, job costing is used in home building or construction industry.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

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