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ACCT - Principles of Managerial Accounting - Essay Example

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The main factor for a company to consider while choosing between job order accounting system and process costing accounting system is the nature of the involved products and how they can be quantified. This is because different activities can be quantified in different…
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ACCT-Principles of managerial accounting The main factor for a company to consider while choosing between job order accounting system and process costing accounting system is the nature of the involved products and how they can be quantified. This is because different activities can be quantified in different approaches, depending on the nature of their products. While some activities are identifiable by completed units of jobs that are unique, others are process based. A job order costing approach is applicable to activities whose products are distinguishable to allow for allocation of involved costs per job such as in construction of household structures in which cost can be accumulated per structure. A process order costing approach is however applicable when activities are homogeneous and involve mass production. As a result, allocation of cost per single activity would be irrational such as in a food company where costing done per process and not per unit product (Mowen, p. 182).
Equivalent units of production are necessary in a process costing approach because it facilitate allocation of costs to unit elements of a production process. This is because costs are measured with respect to processes or departments that consist of a number of units. The equivalent units are then used to derive cost per unit of products (Mowen, p. 255).
The equivalent units of production for direct labor and overhead can be either equal to, or different from equivalent units for direct materials. This is because of the availability of different approaches to costing. An actual or normal costing approach may lead to difference in the values while a standard costing approach may yield same values for direct labor, overhead and direct materials (Mowen, p. 463).
Works cited
Mowen, Maryanne. Cornerstones of managerial accounting. New York, NY: Cengage Learning, 2011. Print. Read More
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