In this module, the discussion focuses on the similarities and differences among costing systems. You should be able to describe the systems and also identify which system would be most appropriate for a company and why that would be the case.
Describe the differences between job order costing, process costing, and Activity Based Costing (ABC). What are the advantages and disadvantages of each system? Imagine a company that you might be a manager for. Describe that company and what their major product or service would be. Then, tell which cost system would be best suited to that firm and why.
Post by classmate 1
Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units for unique products. Job costing is used for very small production runs and requires a lot of record keeping since time and materials must be charged to specific jobs.
Process costing involves the accumulation of costs for lengthy production runs involving standardized products. Process costing is used for large production runs and requires less records keeping.
Activity-based costing (ABC) enhances the costing process. It expands the number of cost pools that can be used to assemble overhead costs, and it creates new bases for assigning overhead costs to items such that costs are allocated based on the activities that generate costs. ABC alters the nature of several indirect costs, making costs traceable to certain activities.
In a construction industry, costs vary widely from job to job as it requires a wide range of inputs, from labor to various types of materials and tools. Costing techniques in construction management require input workers on the job and solid record-keeping. Job costing can be especially useful for construction project managers to keep track of their total job expenses.
Reference:
“The Difference between Job Costing and Process Costing.” AccountingTools, 12 Apr. 2021, www.accountingtools.com/articles/what-is-the-difference-between-job-costing-and-process-costi.html.
Post by classmate 2
There are three costing systems that correlate with the business world. These systems are known as Job costing, Process costing and Activity based costing. These systems present many different approaches to the service they offer.
Job Costing: This system offers the service of tracking the specific costs and stated revenues by the job which is held. Furthermore it authorizes standardized reporting of probability by job.
Advantage: It gives you the opportunity to compare the costs of a job to its profit.
Disadvantage: It can be very expensive and it can be seen as not useful for cost efficient and fast paced jobs.
Difference: With this system, overhead costs are only applied based on a specific cost driver. For example, labor hours and machine hours.
Processing Cost: This system offers the services to trace and accumulate direct costs and allocate indirect costs of a manufacturing process.
Advantage: It presents a greater flexibility when making certain changes while dealing with the production process.
Disadvantage: There is inflation in the production price, because all costs are traced as production cost including nonproduction costs such as overhead.
Difference: With this costing system a product is being massed produced, which means costs are going to be determined by equivalent units produced.
Activity Based Costing: This costing system identifies activities in an organization and will also assign the specific cost of each activity to basically all of the products.
Advantage: Produce more accurate production costs information that is given to the managers.
Disadvantage: This system has to go through a certain process of which they have to divide product into different pools.
Difference: This system has a certain way of allocating overhead costs just based off of activities that contribute to any overhead costs.
If I started up a company that manufactured glass and I needed a certain quantity for each model. I would have to choose processing costs. With the high volume order of glass, processing costs fits best for manufactures. Knowing that the costs can’t be differentiated from one another because they are the same product.
https://www.indeed.com/career-advice/career-development/activity-based-costing-advantages
https://www.zoho.com/inventory/guides/what-is-job-order-costing.html
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