COST SYSTEMS DEPENDING ON HOW COSTS OF PRODUCTION ARE ACCUMULATED
Job order cost system
A job order cost system provides a separate record for the cost of each quantity of product passing through the factory. A quantity of each particular product is called order. A job order cost system fits better in the industries that develop products with that have different specifications most of the time or that have a wide variety of products in stock. Many service companies use this type of system for costing orders by accumulating the costs associated with providing services to their customers. Some characteristics of the job order cost systems are listed below:
- They accumulate in batches
- Production under specific orders
- Normally does not produces the same article
- Examples: Accounting firm, construction company, law practice, apparel manufacturing, movie studio
Process cost system
In a process cost system, costs are accumulated for each department or process in the factory. A process cost system fits more in companies manufacturing products which are not distinguishable with each other during a process of continuous production. Some characteristics of process cost systems are listed below:
- They accumulate costs by department
- Production continuous and homogeneous
- Examples: Oil Refinery, food processing, paper processing, soft drinks, medicines, buckets, toys, pants.
"When" should the cost of production be determined?
- Before we begin the process - Default costs (estimated or standard)
- After or at the same time of the process - Actual costs (current or historical).
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