ACCT 1 0 1 (financial accounting) gave us the foundation to understand how to cl

Question

ACCT 101 (financial accounting) gave us the foundation to understand how to classify costs as assets, liabilities, or as one of the many owner equity accounts. Now we can take our ACCT 101 knowledge and apply it to ACCT 102. We are still focused on the bottom line, that is did we earn a profit or loss (income statement) and how solvent (balance sheet) is our company?

In ACCT 102 we spend a good deal of our time learning different costing models (assigning value [our cost] to our goods or services). Process costing and Job order costing our are first two cost models. So, tell me in this discussion board what are the differences between the two costing systems, Process and Job Order? When is it appropriate to use one model over another? How does a costing model affect the Income Statement and Balance Sheet?

Explanation / Answer

ACCT 102 :

Job costing involves the accumulation of the total production costs in detailed towards the job or the group of units. For example, the job of a custom-designed furniture would be accounted is called a job costing system.

Process costing involves the sum total costs of the various processes taken place which involves continuous production in various phases. For example, the production of several gallons of gasoline through various process is called as process costing system.

The difference between the job costing and process costing could be summed under following points:

1) Product Uniqueness: Job costing is uses for unique products, and under the process costing being standardized products.

2) Job quantity or size : Job costing being used for one large unit or small production , and process costing is used for large size production.

3) Keeping the records : Good record keeping is required under the job costing as small costs are done to produce a job, but under the process costing as lumpsum material and other costs are done, so less record keeping.

When the total of the costs expanded on the job is collected easily and in one shot and the cost are recognised at the various stages of the production, the process costing can be used instead of job costing.

The costing model affect the Income statement and Balance sheet as :

A) Balance Sheet : The inventory levels are at the lower level under the process costing being the standardised products and continuous production. Whereas under the job costing, the inventory specially the work-in-process is going to very high due to production unit being a large one.

B) Income Statement : The costs are on the large scale under the process costing being standard and large scale production. Under the Job costing Revenue could be nil, if the production in mostly under process and not finished.

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