Quiz 4: Job Costing


Costing plays a strategic role in an organization. The success of a firm depends on effective decision making which requires timely and accurate information which is provided by costing. To get the accurate and timely information the firm has to decide the cost system that is required to be employed. In some firms activity based costing may provide timely and accurate information while in others actual costing is easier, hence the firms need to decide on the basis of the nature of their operation the cost method required to be employed. In both strategies whether it is cost leadership or differentiator the requirement of timely and accurate information exists for strategic making decisions. In some companies the strategic environment of the firms keep changing hence the cost system needs to change with the changing environment to ensure timely and accurate information is provided. Some strategic decisions and analysis made on information provided by costing are as follows- a. Product Pricing b. Profitability of Product c. Profit Analysis d. Evaluation of Management performance e. Refinement of strategic goals.

Costing is the process of accumulating, classifying and assigning direct materials, direct labor and overhead costs to products, services or projects The three characteristics of costing system are as follows- a. The cost accumulation method- It is the method in which cost is accumulated for a particular job or process. It includes job costing, process costing and joint costing. b. The cost measurement method- It the method in which cost is measured. This can be done based on actual costing, standard costing or normal costing. c. The overhead application method- It is the method of application overhead amongst different products or activities which can be volume based or activity based. These three characteristics will be reflected in any costing system in a company. The company has to adopt the correct combination of the three aspects to obtain accurate and timely information.

Costing: Costing refers to the process of accumulating, classifying and assigning the various cost to the products, services and special orders or projects to arrive at the accurate cost of such product or services. Since every product and service go through different process so, different costing method is required. Job costing and process costing is two types of costing method. Difference between Job costing and process costing: 1. Job costing accumulates cost and then assigns the same to the product or service produced. Whereas, Process costing refers to the accumulating cost at the departmental level and then assigning the same to the product or service 2. Job costing is used when costs are directly traceable with respect to the specific product or customer project whereas process costing is used where mass production of product or service is done. 3. Job costing is used when every project is different from the previous project and hence, cost is required to be calculated per project. And process costing is used where same process is used to produce products. 4. Example of job costing is service industries like accounting or advocate firm. Example of process costing is industries like chemical industry, bottling companies.

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