Process Costing

1282 Words Mar 17th, 2012 6 Pages
I. Discuss Process Costing, clearly bringing out its advantages and disadvantages.

DEFINITION
Costs are accumulated in costing systems. According to Glautier and Underdown (2001), the development of costing systems reflects the manner in which accounting methods have been adapted to the needs of different forms of activity and technology, and also to the appearance of advanced manufacturing techniques that have been a feature of recent years. Cost accounting systems allow full product costs to be accumulated in accordance with the type of technology employed, and one of the major costing systems found is Process Costing. According to Lal and Srivastava (2009) in Cost Accounting, this is an accounting method that traces and accumulates
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COMPARISON BETWEEN PROCESS COSTING AND JOB COSTING
Process costing is often compared to Job costing, another major costing system, despite their various differences. Unlike Process Costing, Job Costing usually assigns cost to each job based on the actual resources consumed, because each unit/batch of output of production/service is unique. These two systems represent extreme ends of a continuum, but the output of many organisations requires a combination of the elements of both of them. The table below gives some of the common differences that are witnessed between these two cost accounting systems. Job Costing | Process Costing | Work is broken into specific jobs, and each job is tracked separately | Large quantity of identical/similar products are mass produced | Uses skilled labour | Uses unskilled labour | Has short production runs | Has long production runs | Uses different materials from order to order | Uses same materials for every order | Final value can be calculated beforehand | Final value can only be calculated at the end of the complete process. | Costs are accumulated and computed by job | Costs are accumulated and computed by department | Costs are captured on a job cost sheet | Costs are captured on a department production report. | Used for industries that manufacture customized and heterogeneous products. | Used by manufacturing industries that are

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