Free «Product Costing Systems» Essay
In the corporate world today, the business environment has become so dynamic that businesses have started to diversify their operations. However, some businesses have maintained the production of a single product but in large scale production. For the management to be able to ascertain the costs of production, two independent methods of costing have been adopted. To shed more light on these systems, the write seeks to discuss the job order costing system and the process costing system with various examples of the American companies that use them.
According to Khan & Jain (2008), costing system is the particular method adopted by a particular organization in ascertaining the cost of the products or services offered. These systems can either be the job order costing systems or the process costing systems. Job order costing system is where the calculation of costs of particular work is done as a unit or in batches. It can be used by the goods producing companies as well as service producing companies such as accounting firms and repair shops.
According to Lai & Srivastava (2009), Companies are likely to use job order costing system when a variety of products are being produced in each period within their business premise. Under job order costing system, work is broken into jobs which are handled separately during costing. This is to help ascertain the production cost of each product or batch. Additionally, each job has its expenses recorded differently from the others since there are no similarities; the cost of all the inputs, such as labor and raw materials, for each job have to be separately tracked by the cost accountants.
On the other hand, process costing according to Brierley, Cowton & Drury (2006) is the costing system where the production cost of a product is obtained by assigning the total cost to the similar products. In process costing, large quantities of identical products are produced and the total production divided equally on the products; computed on average basis. Moreover, process costing is only used in companies that manufacture similar products; usually in a mass production.
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Examples of companies using job order costing system in America include the Baker & McKenzie Law Firm that offer legal advice for its customers and at the same time defend cases in court. Another one is Milco Industries which deals in a variety of textile products.On the other hand, process costing method companies include the Cherokee Brick and Tile Company which does a mass production of brick and tiles in America. Another example of such company is Youngstown Iron Sheet and Tube Company which also produces iron sheets in large scale (Cassia, Paleari & Redondi, 2005).