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
…show more content…
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
According to Epstein and Buhovac, (2014), costing system is a process designed to monitor the costs incurred in a certain business. Costing systems are meant to advise the management on how to choose the most appropriate course of action with cost efficiency and capability. According to Cardinaels and Labro (2009) costing system provides detailed cost information needed by management needs to control current operations with the aim of improving the future. Below are some of the costing systems that are common to many organizations (Epstein & Buhovac, 2014).
Process order cost systems are based on multiple work in process accounts and determine total manufacturing costs at the end of a time period. Multiple outsourced
“Companies can choose to use the accounting job order costing method when they have a single product line or numerous products to manufacture. However, it is less costly and less time-consuming if they elect to use process costing when calculating the manufacturing of a single product line. With similarities
1. Which of the following companies would be most likely to use a job-order costing system rather than a process costing system?
The traditional costing method is a distribution of manufacturing overhead costs to the actual products manufactured. By using this
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education.
The following annotated bibliography includes a list of references that address cost measures, direct and indirect costs and pricing systems. Cost accounting systems are well-developed for tangible goods. Accounting principles are applied to businesses for financial reporting to analyze the profitability of the business. Direct and indirect costs is the basis to setting regulated prices on products.
Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).
Businesses – from manufacturing, merchandising and service industries alike – take careful considerations for their costing systems. Setting-up competitive prices in the market can be a result of proper costing methods. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods Zauner Ornaments are currently using and upon conclusion, it will enable us to distinguish the advantages and disadvantages of each costing method.
Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to
INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to
Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The
With this costing technique , a Manager can easily determine if there is a weak link in production chain by keeping an eye on the cost per unit each day. Using the accounting programs involved in process costing, a manager can figure out where in the process the item 's per unit cost is going up. This way a single manager or a team of managers can monitor millions of units being produced without needing to check on each department unless a problem comes up. By the same token, these numbers need to be watched diligently, as a change of even a fraction of a cent can cost thousands of dollars quite quickly.
Process costing is a system which mostly practices by a company whereby the manager of the company wants to know the cash flow from one department to another. Process costing give a clarify information to managers, therefore this activities is very important.
During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.