Cost Accounting Assignment Help >> Job Order Costing, Job Costing & Process Costing, Cost System

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JOB ORDER COSTING

This approach is used in industries in which different products are produced. In such type of systems, we determine the overall costs related to the jobs and then divide it be the number of units produced to get the unit cost (average cost per unit). This system is not only used in manufacturing industries but also in service industries i.e. same concept is used for both type of industries.

Difference between Process Costing & Job Order Costing:

Usually, management is not free to select a costing system that is to be used. The choice of which costing system is to be used depends upon nature of products and methods of processing them. Comparison of the two methods is briefly discussed here asunder:

a) Nature of Production:

Each job is unique in job order costing and depends upon customer’s specific requirement whereas the process is continuous one and product is homogeneous in case of process costing.

b) Cost Unit:

Each job is considered as a cost unit and its cost is attained accordingly in case of job order costing. On the other hand each unit of product is taken as a cost unit.

c) Cost Accumulation:

All the costs are accumulated with respect of each job in case of job order costing whereas in case of process costing, costs are collected for each process.

d) Year and Work in Progress:

In case of job order costing, work in progress may or may not exist at the end of accounting period whereas in process costing, closing work in progress always exists.

e) Cost Ascertainment:

In job order costing, cost is ascertained when cost is completed, whereas cost is calculated at the end of accounting period in case of process costing.

f) Cost Accounting & Control:

More paper work as well as managerial attention is required for cost accounting and cost control in case of job order costing whereas cost accounting and cost control are relatively easier in case of process costing.

g) Transfer of Production:

Transfer from one job to another does not take place in case of job order costing whereas in case of process costing, the production from one process is transferred to next one till the product is fully completed.

Cost System (actual or standard):

Actual cost system also known as historical cost system collects the costs as they incur but delays the presentation of results until operations have been performed. In this system, materials and labors are charged as they expended but in many cases factory overhead are allocated on the basis of predetermined overhead rate.

In standard cost system, unit costs are predetermined before the start of production. Cost of each product, process and operation is calculated using standards for both quantity and amounts. Variances are the differences between actual costs and standard costs, and are collected in separate accounts.

Cost Accounting Procedure for Material:

In trading concerns, merchandise inventory and purchases are recorded in familiar accounts. In manufacturing concerns, all materials and supplies are recorded in one control account, Materials. It may consist of the following procedures:

a) Purchase of Materials.

b) Issuance of Materials for factory use.

In case of recording of purchase o materials, materials account is debited and credit is made to Accounts Payable as material is received. Each purchase is also made on material ledger card showing quantity received unit cost and total amount.

When recording issuance of materials to factory at the start of the work, work in process account is debited whereas materials account is credited.

Cost Accounting Procedure for Labor:

Cost accounting procedure for labor is divided in two phases:

a) Collection of payroll data, payroll taxes, payment of wages and computation of earnings

b) Allocation and distribution of labor costs to jobs, departments and other cost classifications.

Cost Accounting practice for Factory Overhead:

The third cost element i.e. factory overhead represents a bit problem.e.g how much depreciation is allocated to factory or how much to office.

Factory overhead is entered on job order cost sheet on the basis of predetermined factory overhead rate based on labor hours, machine hours or any other appropriate base. The job order cost sheet for any job done during the period would disclose the factory overhead applicable to the job.

Accounting Procedures for jobs Completed & Sold:

As jobs are completed, cost sheets are moved from in-process category to finished work file. In this case, finished goods are debited and work in progress is credited. If the completed job is undertaken for the purpose of replenishing stock, quantity and costs are recorded on finished goods ledger cards.