Costing: Job & Process
Many industries utilize the cost accumulation methods, job and process costing to allocate department level cost to products and service. “Costing is the fundamental tool of the management accountant; without the ability to accurately determine the costs of a product or service, it is impossible to develop strategies, formulate budgets, or evaluate alternatives for the organization” (Zahller, 2017). According to Blocher, Cokins, Juras, and Stout (2019), “a job costing system is appropriate when most cost incurred for the job can be readily identified with a specific product, batch of products, customer order, contract, or project. Hollywood Graphics is an organization within my community that prints t-shirts and apparel, signs and banners, vehicle graphic, and embroiders. Hollywood Graphics generates business by customer order solely, which makes it fairly easy to allocate cost to each order. Oral-B also utilizes job costing. In addition to its batch processing of different products the organization manufactures complimentary products for dentist and orthodontist. Organizations such as theses often use software that assist in tracking cost, in addition to job cost sheets. Job costing provides an opportunity for organizations to determine levels and tiers of customer profitability.
“Process costing is one of the methodologies that traces and accumulates direct costs and allocates indirect costs of a manufacturing process (Shim & Siegel, 2009)” (Teeravaraprug, 2011). “Process costing is likely to be found in a firm that primarily produces homogeneous products or services” (Blocher et al., 2019, p. 105). General Mills and Quaker Oats are organization in my community that likely utilizes process costing. These organizations manufacture multiple products of the same genre with slight variations. Quaker Oats has its oatmeal, it also manufactures several flavored versions of the staple. General Mills produces Yoplait which has several different versions that include a light and Greek version of the product. In process costing “the resulting costs benefit more than one specific product, it becomes necessary to allocate those costs among all of the products that are produced” (Hicks, 2010).
Conclusion
Organization utilize cost accumulation to trace direct and indirect cost to products and services. Job costing allows the organization to assign direct and indirect cost to a particular job. While process costing allocates cost based on process. Process costing is generally used by organizations that process homogenous products with minute variations. Cost allocation provides valuable information to the organization that assist in decision making towards achieving its critical success factors.
References
Blocher, E. J., Cokins, G., Juras, P. E., & Stout, D. E. (2019). Cost management: A strategic emphasis (8th ed.). New York, NY: McGraw-Hill Education.
Hicks, M. (2010). Accounting for Decision Making: A Study Guide. Raleigh, NC: Synergies Inc.
Teeravaraprug, J. (2011). Determination of inspection point based on process costing methodology. Annals of DAAAM & Proceedings, , 1379.
Zahller, K. A. (2017). Truffle in paradise: Job costing for a small business. Journal of Accounting Education, 40, 32-42.doi:10.1016/j.jaccedu.2017.02.003