Compare the cost accumulation & summarizing procedures of job order & process costing
Cost accumulation and summarizing procedures in job order costing and process costing are different due to the nature of the production processes in each system.
1. Job order costing:
- In job order costing, costs are accumulated by job or specific order. Direct materials, direct labor, and overhead costs are tracked and allocated to each job as it moves through the production process.
- Each job is assigned a unique job number which helps in tracking the costs associated with that particular job.
- The costs are accumulated and summarized for each job separately, making it easier to determine the total cost of production for each job.
- At the end of the accounting period, the costs of all completed jobs are summarized to calculate the total cost of goods manufactured for that period.
2. Process costing:
- In process costing, costs are accumulated by process or department. Costs are accumulated for each production process or department rather than for each individual job.
- Costs are allocated to units of production based on the average cost per unit for the entire process or department.
- The costs are summarized at the end of each accounting period for the entire process or department, making it difficult to determine the cost of production for individual products or jobs within that process.
- Process costing is used in industries where mass production is the norm, such as in the food industry or chemical manufacturing.
In summary, job order costing focuses on tracking costs for individual jobs, while process costing focuses on tracking costs for production processes or departments. The cost accumulation and summarizing procedures differ between the two systems to accommodate these different production methods.