Job Order Costing

Discuss about the Fundamentals of Quality Cost Accounting.

The current topic is based on discussing the objectives and application of the job order costing and process costing systems. The current issue surrounding the modern business and industry is the need for costing system to meet the demand for the individual requirements. The experts in costing believes that it is not possible to implement a single method of costing to meet the requirement of every business or industry needs (Zeff, 2016). The main theme of the guest lecturer was to develop a different means of costing for different industries based on the sort of production and their nature.

According to the lecturer the industry can be assembled under two basis types namely the industry that is doing job work and the industry that are indulged in mass production of a particular product or having similar products (Lanen, 2016). The essay will be critically analysing the current and relevant literature obtained from the wide range of sources. An informed and logical argument will be developing to support and focus on the central theme of the guest lecture. The essay will finally be providing a conclusive evidence that would be linked with the purpose of job and process costing with implications on future decision.

The system of job costing can be defined as the way of costing where the process of production is undertaken or service that is rendered against the specific order (Gitman et al., 2015). The job costing is considered as the form of costing where work comprises of distinct jobs, agreements or batches with each method of costing is different from each other. Every job has its own set of characteristics and is required to execute particular requirements of customers. Under the job order costing the production cannot be considered as the continuous basis, reasonably it is only used when the customer is received and according to the specific of the customers. Each form of job generally differs from each other.

Methods that are used in the sort of commercial business is the job costing and job order costing (Christ & Burritt, 2015). The objective of job order coting is to determine the cost of each of the product by preparing the job cost sheet. A job might be product, sales order, definite program or any other object of cost which is distinguishable clearly and sole in respect of resources and other forms of amenities used.

Process Costing

The chief purpoe of the job order costing is determining the cost of every product and profit and loss during the execution of different jobs. The objective of job order costing is to facilitate the estimation of costs of identical jobs that would be considered in future (Taleb et al., 2015). The management is able to look into the operational competence of the jobs by equating the estimated jobs with the real cost of jobs. Another vital objective of job order costing is to evaluate the work in progress on the different jobs that is facilitated.

Without an effective method of job order costing most the companies depend upon the monthly accounts to reflect if they are making any profits. Regrettably, accounting software hardly reflect the where the profits and loss are made. The manual accounting cannot reflect the potential problems in production (Ellul et al., 2015). The estimating modules provides an estimates of the profits based on the costs that a system charges. The application of job order costing helps in accurately monitoring the costs. On accurately applying the job order costing techniques production time, cost of materials and prices of outwork are required to be entered into the system.

The material and the outwork costs under the job order costing can be entered manually for gaining accurateness or automatically creating a system when the purchase order are raised to save time (Toms & Fleischman, 2015). The purpose of any business is to generate revenue and job costing is regarded as the most effective method of making sure that the cost is assigned to each job or each batch. A vital requirement of the job order costing is that direct materials and their cost should be outlined and should be recognized with the exact job and work order. The separation of material costs by the jobs and work order is carried by the usage of discrete stores application for each of the job and work order.

Where the bill of materials is arranged, it lay down foundation for the preparation of the stores requisition (Mitra, 2016). Similarly, during the periodical interval from the material books, the summary of cost relating to indirect material is recorded to different standing orders to the diverse standing orders under the expenditure code figures in the overhead expenditure ledger.  

Similar to Job Costing, manufacturing companies also follows the process costing and the production costing to carry out production in two or more centres on a continuous basis. It is one of the basic methods of allocating the total costs to the unit of products in a process manner (Callen, 2016). The methods of process costing accumulates the costs by the time period and relates them with the output produced during the same period. According to Schaltegger& Burritt, (2017) process costing is referred as the way of cost accounting where overheads are charged to process or processes and averaged over the number of units manufactured.

Application of Costing Systems

Preceding from the previous discussion the process costing system is applied in the continuous production industry where the flow of production is in the sequence form where the output of one process turns out to be process of subsequent process (Wouters et al., 2017). The objective of process costing is to discover the cost of each procedure by recognizing the direct costs with the specific process and allocating the indirect costs which is overhead to each procedure on a suitable basis. The basic principle governing the process costing is the operation of the unit where the product is divided into several operations or production centres of each of the performing standard operations. The purpose of the project costing is to determine the cost of each unit cost.

Another purpose of job costing is to define the method of allocation of manufacturing costs incurred during the given period of time. The objective of process costing is to accumulate the materials, cost of labour and factory overheads cost to process the costs centres (Eldenburg et al., 2016). The process costing is engaged with expressing the incomplete units in respect of completed units. One of the vital objective of process costing is that it provides accounting treatment to process the loss namely the waste, scrap, defective goods and spoiled goods. The process is concerned with differentiating the main products from the by product and joint product and provide an accounting treatment of the joint product and by product. The process is generally engaged with the computation of cost of main product correctly.

Preceding from the discussion of the above stated paragraph the application of process costing is vital. Usually an industry follows the process costing system where there are two process of production (Jermias, 2017). Alternatively, an industrial unit that are following single production procedure can implement the operation costing methods instead of implementing the process costing system. Additionally, an industrial unit can implement the operational costing procedure rather than implementing the process costing system despite the industrial units are unable to implement the process costing system and has a minimum of two production procedure.

The process costing is related with the flow of units and costs through the several stages or operations. The process costing is usually applied on the homogenous products are produced with the help of continuous process (Hemmer & Labro, 2016). The process costing is usually applied on the industries that are adopting the continuous process. Process costing represents the methods that are applied for the manufacturing concerns which is producing or adopting a continuous production process.

The methods of process costing are usually applied on the manufacturing concerns such as industries that are producing chemicals, lubricants, garments, rubber, sugar or coal. This forms of costing are largely applied by the companies that manufactures the items such as rivets, screws, bolts and electrical waves. The application of process costing methods are usually widely accepted (Uyar & Kuzey, 2016). Therefore, process costing systems are usually considered as the continuous or mass production system of cost accounting. The industries in which the tool of process costing is applied are many. However, a process costing systems are usually applied on all the industries except where the job, batch or unit operation costing is necessary.

Job costing generally considered as the cost that sustained in the business that are associated to manufacturing of goods. The legers of job costing, where the cost of jobs are recorded forms the essential portion of the final account statement of the manufacturers. Such forms of costing keep the records of the definite jobs instead of specific procedure (Bouwens, 2017). The process costing defines the practise in determining the overheads that are sustained at the time of performing the particular task or product. This may consist of involving the cost with every individual production. However, the process costs involve application in manufacturing business that is held together by several continuous or repetitive procedure.

The system of process costing involves ascertaining the process cost of each unit product. According to the definition, the process costing is usually applied on the manufacture business which is held together by numerous or repetitive process. According to Hemmer & Labro, (2016) process costing works efficiently for the industries that are known to manufacture single form of products. Both the method of costing is associated to the labour and overhead costs. Process costing is advantageous in maintaining a tight supremacy on the monthly expenses a manufacturing business incurs. Arguable the major differences of the job costing and the process is that job costing is carried out when a particular job is being carried on (Eldenburg et al., 2016). While process costing can be only applied when all the process of the product is completed. Additionally, when there is a situation of documentation under job costing the job cost sheet becomes important while in the process costing a document that have deposition and accumulation of numerous cost is vital.

There is certain criticism of Job Costing as the method of costing is expensive and involves large number of clerical work. The methods of job costing involve clerical work and there is a high probabilities of errors (Wouters et al., 2017). In the absence of advanced production control system, the method of job costing may be turn out to be defective. Accurate system of costing cannot be considered possible without the system of budgetary control of the overhead. Job costing has been citizen for considering the historical nature as the system suffers from the flaws of historical costing.

Process costing on the other hand determines the process costs on the periodical basis at the short time intervals. Unit cost under the system can be computed on weekly or even in daily basis if the overhead rates are used on predetermined basis. Unlike job costing the method of process costing is easy to understand and less expensive to discover the process. Process costing facilitates managerial control which under job costing is not possible (Christ & Burritt, 2015). The guest lecture criticised that under process costing W-I-P is required to be determined at the end of the accounting period for determining the costs of continuous process. Valuation of W-I-P is usually done based on the estimation that introduces further inaccuracies in the total costs.

Conclusion:

Fundamentally under the process costing the cost are accumulated that are incurred in the production of product as per process or departments. In situations where an organization has the mixed system of production that manufactures large quantities but later customizes the finished products it is possible for those firms to use the elements of job costing and process costing. Considering the future implications of both system of costing, both the job and process costing can be used in the manual and computerized environment of accounting.

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