Question

Give one example of Saudi companies using job costing and one example of Saudi companies using process costing and discuss the difference between them?   

Answer 1

As we know Saudi is rich in producing petroleum so we will consider the concept of petroleum and let's see the process of job costing and process costing for petroleum in Saudi We will take the Baas international group oil and gas, petroleum company example to describe the process of job and process costing. 1. JOB COSTING: Job costing is a mechanism to trace specific costs to individual jobs and investigate them to check if the costs can be decreased in later jobs. IN job costing an individual unit, batch, a lot of a distinct job product or service called a job, Job costing entails a series of transactions that collect the cost of materials, labour overhead to a particular job.It is used to accumulate costs at a small unit level. Job costing is suitable to derive the cist of developing a software program, building construction, or manufacturing small products. The cists of production are easily assigned to the units being produced. Job costing is used where employer distinguishes one job with other. They can collect cost of each work order in product line. Job costing involves the following accounting activities. a. Materials: It collects the costs of parts and then assigns these costs to a product or project once the components are used b. Labour : workers charge their time to particular jobs, when are then assigned to the jobs based on the labour cost of the employees Overhead : it accumulates overhead costs in cost pools and then allocates these costs to jobs. COMMON APPROACH: 1. Identify the chosen cost objects 2. Identify the direct cists of a job 3. Select the cost allocation base. 4. Identify the indirect costs associated with each cost allocation base 5. Compute the rate per unit of each cost allocation base used to allocate indirect costs to job 6. Compute the indirect costs allocated to the job 7. Compute the cost of the job by adding all direct and indirect costs assigned to it. PROCESS COSTING : The main purpose of the process costing is to control process to know accumulative cost to calculate the value of inventory of raw material work in progress, and finished goods at the end of the period. This method is used to assign the price of the products. The production is constant and cost flow from one process to another. The production is homogenous and standardized. They re not distinguishable in processing stage. Outcome of one process become raw material for another process. Costs are collected process wise. It is divided by the normal output of that process to find out cost per unit of that process. The units which are incomplete at each stage of production are converted in to equivalent production based on degree of incompleteness. 2. DIFFERENCE BETWEEN JOB AND PROCESS COSTIBG SYSTEMS. JOB COSTING a. Each job is manufactured against specific requirement b. Each job is taken as a cost unit C. Costs are collected and accumulated against each job d. Cost of a job is calculated when the job is completed increases paper work and more managerial attention is needed for cost accounting add cost control e. WIP may or may not exist PROCESS COSTING: a. Production is of continuous flow, without any reference to specific order or job b. Each unit is taken as a cost unit C. Costs are allocated for each prices d. Costs are calculated at the end of accounting period. e. As the product is homogenous cost accounting and cost control are comparatively easy f. At the end of accounting period WIP will always exist.