Reference no: EM131231303

Accounting

1. Job order costing is a system of assigning a standard cost to each job or "batch". "Costing is an accounting technique used to determine the exact expenses for materials, labor and overhead incurred in operations" (Ingram, 2016, para. 1).

The first thing that came to mind was back when I ran a banquet hall. Would start at a "basic rate" that was determined from our record keeping what in would costs in labor, materials, and loss of closing, then add on basic expenses such as a preselected menu, bar fees, and so on. The immediate advantage was that the event would profit a set amount, a disadvantage would be scenarios when customers would approve said amounts, change orders, increase and wait staff would have to account for this to adjust rate previously stated.

Another example would be construction. Take a handcrafted door verse a manufactured door. An assembly line door has less human error, no labor, and the determined parts, time, etc can be calculated and remain constant, ideal parameters for job order costing. A handcrafted door will take more time, labor, and has human factor of error, so intended materials, time, may fluctuate from door to door, this could be better as a unit cost calculation. A total cost/total number of products.

Reference:

Ingram, D., (2016) Small Business.com, Advantages and Disadvantages of Job Order Costing and Process Costing. Retrieved from https://smallbusiness.chron.com/advantages-disadvantages-job-order-costing-process-costing-3082.html

2. Job order costing or job costing is a system for assigning manufacturing cost to an individual product or batches of products. Generally, the job order costing system is used only when the products manufactured are sufficiently different from each other. (When products are identical or nearly identical, the processing cost system will likely be used.) Since there is a significant variation in the products manufactured, the job order costing system will create a job cost record for each item, job or special order. The job cost record will report the direct materials and direct labor actually used plus the manufacturing overhead assigned to each job.

3. According to, Accounting tools, Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units. This consist of all costs of labor worked on that specific item would be recorded on a time sheet and then compiled on a cost sheet for that job. Whereas Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. This consist of costs being accumulated at the department level, and no lower within the organization. This type of job order costing helps managers and owners better run their business. When you are able to see all the labor that has been worked for one item you are able to find ways to lower that labor costs.

4. The process costing is a technique mostly use in the massive production process. In this case, the cost cannot be identified individually. These costs are accumulated over a period of time and then they are allocated to the units produced in that period of time. I've worked in places where companies use both techniques at the same time : the job order costing and the process costing; some companies prefer to use only one of them.

Usually, the process costing is used in the production of large number of items and if customer ask for something with specific characteristics, more personal, or more customized; companies also use the job order costing.

In my previous work; the company was a truck manufacturer and they use hybrid system. They produce their own parts, so for these "parts" they use process costing technique. The daily truck production at that time was 50 trucks; this production was divided in two; one for "specials order" (job order costing) and the general production (process costing). They needed to do because they had trucks with very particular customers' requirements.

For the process costing this company use the FIFO (first in - first out) to control their inventory. This allow us to determine in an easy way the inventory on hand, the orders that need to be replenished, and also the cost of the goods sold use in a period of time.