Job Order versus Process Costing Techniques Research Paper

Job Order versus Process Costing Techniques - Research Paper Example Costing is one of the counting techniques used by companies’ manufactures goods and services to ascertain the labor, material expenses, and overheads incurred in operations. This is very crucial costing enables a company to know with certainty the materials needed, labor requirements and the overheads incurred for planning purposes. Costs are first accumulated after which they are assigned to products and services. Job-order and process costing are the two main product costing techniques usually employed for accumulating and assigning costs to services and products. Process costing, according to Finkler, Ward, and Baker, are a costing technique, which involves assigning all units produced within a given period to the same cost (34). Job-order costing, on the other hand, is a costing system that ascertains separately the costs incurred for producing the units for each job (Finkler, Ward, and Baker 34). The two costing techniques have certain differences, which makes them suitab le for certain companies and not in others. To begin with, before assigning costs to products and services, it is always necessary to accumulate the costs involved in the operation. This ensures that the company effectively determines all the overheads, labor, and material expenses involved in the operation. The two systems have several differences that distinguish one from the other. Firstly, in job-order costing system, jobs are given varying degrees of attention and skills from each operation or production department (Kinney and Raiborn 207). In contrast, in process costing system, the out-put units produced are given equal attention from each operation or production department.... Thirdly, in job-order costing system, costing is done to meet specifications of individual customers. This implies that products and services are produced in line with the requirements of a given customer. Therefore, in the job-order system, production is normally preceded by sales. In contrast, in process costing system, sales are preceded by production since production is for generating inventories for future sales. Therefore, under process costing system, there is no need of attempting to identify labor, material, and overhead costs with the specific orders made by customers. This is because each order forms just one of the many filled from a continuous flow of almost identical units from the line of production. Therefore, in process costing, costs are accumulated by departments, but not by orders, which are then assigned uniformly to all units passing through the department during a specified time. According to Finkler, Ward, and Baker, costs are not accumulated using job cost sh eets (Oliver 56). Fourthly, the two costing systems differ in accordance with how the unit costs are determined during operation. In this regard, in the job order costing system, unit costs are ascertained continually as soon as each job is completed. Process costing system, in contrast, involves periodic determination of unit costs. Additionally, in job-order costing system, material required for jobs depend on the order received. As such, the stock held is small in job costing. In process costing, on the other hand, materials required for output are known with certainty. Therefore, the material stock kept on hand tends to be higher than the job-order costing. In addition, most jobs, in job-order costing are directly traceable to other jobs, implying that a