Consider the following scenario: Your CFO, in her initial work, needs to decide
ID: 2428500 • Letter: C
Question
Consider the following scenario:
Your CFO, in her initial work, needs to decide whether to set up a job order costing system or a process type costing system. She has asked you to make a recommendation based on the following information. You plan to meet with her in the morning. Write 4–6 paragraphs in response to the following, and provide support for your recommendation:
Compare and contrast job order costing to process costing methods.
What kind of system works best in what kinds of companies?
What kind of system makes sense for your company, given that you plan to start with only one version of your product but at some point in the future may offer a variety of options?
Explanation / Answer
In a job order cost system, companies assign costs to each job. In a process cost system, companies track costs through a series of connected manufacturing processes or departments, rather than by individual jobs. Thus, companies use process cost systems when they produce a large volume of uniform or relatively homogeneous products. Differences: 1. The number of work in process accounts used. A job order cost system uses only one work in process account. A process cost system uses multiple work in process accounts. 2. Documents used to tgrack costs. A job order cost system charges costs to individual jobs and summarizes them in a job cost sheet. A process cost system summarizes costs in a production cost report for each department. 3.The point at which costs are totaled. A job order cost system totals costs when the job is completed. A process cost system totals costs at the end of a period of time. 4. Unit cost computations. In a job order cost system, the unit cost is the total cost per job divided by the units produced. In a process cost system , the unit cost is toal manufacturing costs for the period divided by the units produced during the period. Job order costing system is used for the service companies. Process costing system is used in the manufacturing companies. Process costing system is used when a company producess a continuous flow of units that are indistinguishable from one another. For example, a glue manufacturing company would use a process costing system. In a manufacturing company that produce different products each period would be best suited using a Job cost system over a process costing system. Job order costing system is the best for this type of manufacture because the products produced are usually manufactured to customer's specifications and are unique in nature . Process costing is used in situations where a single, homogeneous product such as cement, bricks or gasoline, is produced for a long periods.Related Questions
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