Question

What is the main factor for a company in choosing betweenthe job order costing and process costing systems? Give two likely applications of each system.

Short answer

The main factors are product quality and reduction in manufacturing costs. Job order costing is applied to manufacturing units and printing presses. Process costing system is applied to companies involved in oil refining and textiles business.

Step-by-step solution

Explanation of Job Costing

Under the job order costing system, the unit cost of the product is determined on the completion of the job. It is estimated by dividing the total cost incurred in the particular job by the total units in the particular job.

Explanation of Process Costing

Under the process costing system, cost per unit is determined at the end of the period, by accumulating the cost per equivalent from identical departments used in the processing.

Rational for choosing between two

The main motive of the managers is to reduce manufacturing costs, focus on the quality of the product, and increase efficiency. All these are considered while choosing between these two systems.