Question

1. Explain in your own words what Job Costing and Process Costing are. Why do we have any costing systems at all? What is your plain language definition of Job Costing and Process Costing? How are they different? How are they the same?
2. Give two real-life examples of actual products that are likely costed using job costing and give two examples of actual products that likely use process costing.
3. How would a marketing professional or a non-accountant manager benefit from knowing the cost of the company's goods? Why is this important?

Answer 1

Job costing is used by firms which involves the detailed accumulation of production costs attributable to specific units or groups of units. On the other hand, when a product passes through several processes or stages, the output of one process becomes the input of next process, and to determine the cost of each process.For example, a construction project to build a house from beginning to end is a job order.

Process costing It involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. It is a method of assigning costs for a mass quantity of a product or service. For example, a bank provides the same service of receiving deposits to all customers.

Given these descriptions of job costing and process costing, we can arrive at the following differences between the two costing methodologies:

• Uniqueness of product. Job costing is used for unique products, and process costing is used for standardized products.
• Size of job. Job costing is used for very small production runs, and process costing is used for large production runs.
• Record keeping. Much more record keeping is required for job costing, since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.
• Customer billing. Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.

Two examples of actual products that likely use process costing.

Examples of this include the manufacture of erasers,Milk,Paper, chemicals or processed food. In process costing it is the process that is costed (unlike job costing where each job is costed separately). The method used is to take the total cost of the processand average it over the units of production.

Two real-life examples of actual products that are likely costed using job costing.

Examples of manufacturing businesses that use job order costing system include clothing factories,House painting services,Movies, food companies, air craft manufacturing companies etc. Examples of service businesses that use job order costing system include movie producers, accounting firms, law firms, hospitals etc.