Quiz 5: Job-Order Costing
Job Order Costing- Some manufacturing and service firms produce unique products or services and its type accumulates cost of each job. Such production system is known as job-order production systems and this approach to assigning costs is called a job-order costing system. In a job-order firm, collecting costs by job provides vital information for management. Process Costing- Some firms produce the homogenous product on a large scale and thus the cost of one unit of a product is identical to the cost of another. Such type of approach used by firm is known as Process Costing approach. It can be used both by manufacturing as well as service firms. Types of firms using job-order costing: Those firms operating in job-order industries which produce a wide variety of services or products that are quite distinct from each other falls under the category of job-order costing. Customized or built-to-order products fit into this category, as do services that vary from customer to customer. Types of firms using job-order costing: Those firms in process industries mass-produce large quantities of similar or homogenous products fall under the category of process costing. Process or department accumulates the cost of process.
Job-order costing is used in both manufacturing as well as services firms. Process costing like job-order costing is also used in both manufacturing as well as services firms. Job-order costing is not simpler to use than process costing because recordkeeping requirements are more as all the jobs are different from each other. So, tracking of all the cost of each job has to be done separately. Job-order cost sheet describes all the cost which is incurred on jobs, and thus helps in computing the total cost. So, job cost sheet is subsidiary to the work-in- process account. d. The job cost sheet is subsidiary to the work-in-process account.
Some examples of service firms that use job order costing are: • Beautician services. • Air charter services. • Hotels. • Medical and dental services Job-order costing approach is used in such firms because there is wide variety of distinct products as per the needs of the customer and a job is associated with a particular customer order. Hence, the cost of one job differs from that of another and must be kept track of separately.