Question

1. Describe something you recently purchased and which method was used to make it.

2. If it was made using the job order method, describe how it could be made using a process costing and vice-versa.

3. Which component of costs (direct material, labor, or overhead) would increase if it were made using the other method and why?

Answer 1

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1) I had purchased 5 different coloured cotton material to stitch 5 shirts. The method I used here can be mentioned as a process costing method. The reason why I had selected this method is that they are having the same material and the purpose was to stitch 5 shirts . Thus we can say as the process of stitching for 5 shirts are same, so the labour cost will be same for each shirt We know that process costing method is used when we producing or manufacturing identical or nearly identical products. Process costing is good for any repetitive process. So by this analysis we can say this is an example for process costing method. 2) As I had mentioned that I will be using process costing method, each shirt will cost same price after stitching. In other words we can say each product have the same per unit value. Even if we are using job order costing method instead of process costing the result will be same as we are using the same material,same process and the labour charge is same as well. If the case was of stitching a shirt and a jeans, then the situation completely changes. Here we have different material and the labour and overhead cost will be different for jeans and shirt .For this situation Job order costing will be suitable. .Job order costing assigns cost to a specific job. 3) In this scenario, the direct material, direct labour and overhead cost is same for both process and job order. This is because we are using the same material, same process and same labour as well. Thus the per unit cost for both methods are same. 1