Compare and contrast job order costing to process costing methods. Comparison: These systems are to determine the manufacturing costs of products. Both costing systems combine direct materials, direct labor and overhead which is indirect costs or could be considered a direct cost in the process costing method nonetheless both systems use this in the process of producing products. The manufacturing accountants assign cost objectives to raw materials inventory, work in process inventory and finished goods. These systems are necessary to determine inventory, profit and the units that are sold and the price for them. The cost flows through the general ledger accounts for direct materials, direct labor and overhead is also the same.
Contrast: Job order costing is for customized orders to meet the specific needs of a customer. This type of manufacturing doesn’t take place until the customer puts in a request for items. This process involves the company predicting the cost to get the job done, negotiating a price with the customer and then set out a timeframe to start and complete the job order. (Wild & Shaw, 2012) Job order costing tracks specific costs to specific jobs it could be a single unit or a small amount of similar units. Records are maintained on a job cost sheet for each job. The job cost sheet shows the customer the job number assigned, product and key dates. (Wild & Shaw, 2012) In essence, job order costing is for companies that produce different products in small amounts. Process costing method focal point is for high volume of one type of product or many similar products. Manufacturing of products takes place through a synchronized process. Processing is based on demand that is forecasted by managers not based on customized orders like job order processing. For example, Avon Products, Inc manufacturing facility is located in a suburb of Chicago and they use process costing method to produce lotion and makeup. Also, worth mentioning is that direct...
Please join StudyMode to read the full document