Job Order Costing System and Process Costing Method - Essay Example

Job costing has a lot to do with the calculation of costs associated with the manufacturing of goods (Hansen & Mowen, 2006). Such costs are entered in the ledger accounts all year round only to be displayed in the trial balance before the manufacturing statement is prepared. Also, the way costs flow is traced by the job as opposed to by the process as is the case when dealing with process costing (CSUS, 2010). The cost of the job is then divided by the number of units in that particular job so as to get the average cost per unit (Hansen & Mowen, 2006).

Job order costing system is mainly used in service industries including hospitals, movie studios, law firms and even repair shops as well as in cases where individual non-homogeneous goods are produced by an organization. When it comes to this type of system, record keeping and cost problems can be very complex to handle especially where different products and services are available, compared to when dealing with single products and services. Since the products available are different, the cost will relatively be different hence a cost record for each product.

Therefore, job order costing needs a lot of effort and concentration as compared to process costing system. Process Costing System Process costing involves tracing and accumulation of direct costs, and the allocation of indirect costs of manufacturing processes (Hansen & Mowen, 2006). Process costing is much applicable when the products in question are naturally homogeneous. Costs are in this case assigned to products which are produced en mass as noted by Hansen and Mowen (2006). This method is most suitable for industries such as chemical manufacturing companies since the process flow is continuous.

In this system, a production report is prepared to summarize the totals and cost of units. Characteristics of process costing system Accumulations of production are reported by different departments. The costs are reported to departments’ work accounts.The production process at the end of every period is accounted for in terms of units completed. In the case of a company that deals with chemicals, cement, electrical parts, textiles and pharmaceuticals products, process costing method is advisable.

This is because their production process is continuous and order costing method may not be appropriate for this kind of companies. Job order costing is applicable in companies that manufacture many different products for example clothing factory and service industries (Hansen & Mowen, 2006). Each product has its own price hence this system is appropriate to use and follow. Records of each and every order and its cost are stored separately for easy understanding and follow up. Records in a process order costing system are much easier to follow and less complicated as compared to job order records.