Unit 3 DB Managerial Accounting
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Unit 3 DB Managerial Accounting
Job order costing system is a system used in job situations where many types of products are generated in each and every period. A clothing factory is a good example that would use a job order costing system since different types of jeans would be manufactured within a given period of time. In addition, they would be for men or women. In this kind of costing system, the costs are followed back to the jobs and then they are divided by the total number of units in order to get the cost per unit. It is also widely used in industries offering services to the public: law firms, advertising agencies, hospitals and accounting firms. This gives them assistance on accumulating all the costs incurred for the purposes of accounting and billing.
Process costing methods on the other hand are used when production of one single product continues in large amounts and for a comparatively longer period. Process costing system just like job order costing system provides a cost per product which is arrived at based on direct costs. Most of the products received from the mass production are sold out individually but in large quantities therefore a change in the cost of each unit results to a significant change in the total cost. Process costing methods are most effective in chemical production industries, flour, steel rubber as well as pharmaceutical manufacturing companies. This is why process costing systems are in some instances called continuous/mass production cost accounting systems.
For a young company still in its initial stages of operation, a job order costing system suits it best. This is because it gives the owner an option to sell a variety of products at the same time in order to know which one best suit their interest and in future they can focus on an individual product. Furthermore, a job order costing system ensures continuous product supply for the company.
References
Needles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of Accounting. Cengage
Learning.
Dosch, J., & Wilson, J. (2010). Process Costing and Management Accounting in Today’s
Business Environment. Institute of Management Accountants.
