Accounting Discussion

W4

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Brittany Milton posted Jan 27, 2021 7:55 AM

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Job-order costing - is a costing methodology used to assign manufacturing costs to individual units or output. This costing method is best used for companies generating heterogeneous products from which costs are significantly different from each other.

Process Costing - a costing technique that accumulates direct materials and proportionately allocates indirect costs. This costing technique is best used for companies generating mass homogeneous products. The costing is done by batch because the individual output cannot be differentiated from one another. 

Activity-based Costing - a method that assigns cost per activity according to the actual consumption of individual output. This method is more accurate in assigning costs compared to traditional because it uses more specific cost drivers to accurately allocate the cost incurred. This is best used by companies generating products with a significant amount of overhead.

Similarities between the three costing methods:

The goal is to assign costs to products.

All three methods record each component of total manufacturing costs separately (materials, labor, and overhead). 

Differences between the three costing methods:

Both job-order and process costing uses predetermined overhead while ABC costing uses cost drivers.

Types of products produced, job-order costing is for heterogeneous products, process costing is for homogeneous products, while ABC costing is for products that use a significant amount of overhead.

Discussion 4 - Tim Dean

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Timothy Dean posted Feb 3, 2021 12:22 AM

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Job order costing, process costing, and activity-based costing have some similarities and several differences between them. Job order costing is used for very specific order processing. Each of the jobs is different from each other. It is driven by individual customers and has different identities. Process costing is a way of costing for math productions and large units of production. This one is not customer focused but more market oriented. Activity-based costing is the method which allocates overheads to products on a rational basis of the activities actually completed rather than normal cost drivers like labor cost, machine hours, labor hours, and various other categories.

Some advantages for the job costing method is it shows very easily which jobs are profitable and which ones are not. It also helps in achieving profitability targets based on gross margin. It helps figuring out and possibly changing the selling price for each job. Probably most important is it helps determine the accurate cost for each job. Some disadvantages of the system are this system is very expensive to keep up with as it uses additional labor hours and individual records. It is not able to be applied for mass production units. And lastly the system is suited only for customized orders.

Some advantages of the process costing method include calculating gains and losses that may be abnormal. This method is able to be used with firms which have mass production. A few disadvantages of the system are the method is over simplified as it calculates the cost over all of the units produced. This process is also not very useful for individual items which are expensive and may need specific attention. Lastly this system is not very helpful with orders which are very customer specific.

As far as the ABC method some of the advantages of it are it helps keep accurate product pricing compared to accurate product costing. It is very accurate when it comes to costing as a relates to the activities that are being completed. It also helps when it’s time for performance reviews for employees of the company since accountability is built in for the activities. A few disadvantages of this method however are they are not very effective were there is more of a cost involved than compared to the benefits that are given. When there are only a few cost drivers that play into overhead this method is not very useful. This method also takes a lot of additional time and effort to keep it running smoothly.

Some companies may use more than one system. In situations where a company has a mixed production system that produces in large quantities but then customizes the finished product prior to shipment, it is possible to use elements of both the job costing and process costing systems, which is known as a hybrid system. (Bragg, 2020)

For the company I will discuss I won’t be a manager yet I’ll be an owner. When I was younger I used to own vending machines. At one point I had a goal of owning a coin car wash. Nowadays with technology very few of them take coins because they take credit cards however they are the same concept. In my business I would offer self-service car washes, vacuuming, a drive-through car wash, and maybe a little bit of detailing services. For my business I would use the job costing method. The reason I would use this method is because I could do different orders for different customers that have different services included and not included. I will be able to determine profit for each individual part of my business based on how much revenue brings in and comparing it to the cost for providing the service.

Works Cited Bragg, S. (2020, December 20). The difference between job costing and process costing. Retrieved from  https://www.accountingtools.com/articles/what-is-the-difference-between-job-costing-and-process-costi.html