Question

1. identify 3 differences between job order and process costing 3 2. Identify 3 similarities between job order and process costing 3 3. how do we computer the equivalent units of production for material what items are included in the computation 4

Answer 1

Answer 1

Differences between job order and process costing.

1. Job order costing is used for products having low standardization ( Think bespoke furniture pieces ). Process costing is used for highly standardized products ( Gasoline/Petrol production ).
2. cost is computed on a per unit basis in job order costing and billed directly to customer. Cost is computed for a batch of production, cost per unit is included within the price and not billed in detail.
3. Job order costing is generally paired with low level of automation and high level of skilled manual labor. Process costing is suitable for highly automated production plans with less manual labor intervention.

Answer 2

Similarities between job order and process costing.

1. Both job and process cost systems have the same goal: to determine the cost of products.
2. Both job and process cost systems have the same accounting treatment and cost flows. Production is recorded in separate accounts for materials inventory, labor, and overhead. Then, they transfer the costs to a Work in Process Inventory account.
3. Both job and process cost systems use predetermined overhead (Fixed costs) rates to apply overhead.

Answer 3

There are two ways to calculate equivalent units of production, known as the weighted average method or the first-in, first-out method.

Weighted Average method

Total equivalent units for a cost component = A + B × C

Where
A = units transferred out to the next department/finished goods
B = units in closing work in process
C = percentage of completion with respect to the relevant cost component

First-in First-out (FIFO) Method

Equivalent Units of Production = equivalent units to complete beginning inventory + units started and completed during the period + equivalent units in ending work in process inventory.

We may choose either method based on the policy of inventory costing followed by a particular company. i.e. weighted average or FIFO approach.