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“A job order costing system is used to accumulate the costs associated with a specific batch of
product”( .accountingtools.com, 2018). These are most suited for the jobs that have
specific product lines and “goods and services are produced upon the receipt of customer
order”( Walther, L. M. & Skousen, 2009). . A good example of a company that can user
job order costing is a Restaurant. When you are running this kind of business, you are
providing a variety of services in the food industry. You would need to understand the
costs of the food staff that you are selling, the rentals of the building you are operating as
the employees used as well as the fixed assets such as the chairs, tables, pots, cups any
other Kitchen utensils that you are working with. The standard formula is
“The per unit cost of a particular job is computed by dividing the total cost allocated to that job
by the number of units in the job. The per unit cost formula is given below:
Per unit cost = Total cost applicable to job / Number of units in the
job”(accountingformanagement.org). In this system you first look at direct labor to specific job.
Such as those assigned to making Burgers, Tea, cleaning of the utensils and materials etc. and
then ,calculate the overheads or indirect labor, such as the food ingredients, intensils such as
spoons folks etc. These have to be calculated in the cost of running this business.
On the other hand Processing order system “is mass production of similar products, where the
costs associated with individual units of output cannot be differentiated from each other.”
( .accountingtools.com, 2018). Typical example is the Mining industry that manufacture Copper.
The cost of production is assumed to the be the same. There is no component of the Copper ore
that should be credited to any piece of Copper Wire that is produced and therefore in terms of
calculating the Operational expenditure Processing cost is one of the factors to consider
“Operating costs (COP) = (Mining costs) + (Processing costs) + (Mine reclamation costs) +
(Power and Energy costs) ”) Carsten & C Bongaerts, J. (2015).
The Diamond Gem Cleaning Service and Maintenance Service Company
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Finally an example that can use Activity based costing is the Mobile Network Operator.
“Activity-based
costing ABC is a method for assigning costs to products, services projects, tasks,
or acquisitions, based on the activities that go into them and the Resources consumed by these
activities” (.business-case-analysis.com). This is because of the many products and services that
are offered by these companies. With the many products being managed and produced by the
Mobile Network Operators, individual products will be estimated accurately if ABC is used and
the advantages are that ABC will help identify projects that are not profitable, improve
productivity & efficiency.
REFFERENCE
Activity-Based Costing and ABC Management retrieved on 18th September 2018 from
https://www.business-case-analysis.com/activity-based-costing.html
Inthavongsa, Inthanongsone & Drebenstedt, Carsten & C Bongaerts, J. (2015). COST
ESTIMATION FOR OPEN PIT MINES: TACKLING COST UNCERTAINTIES.
job-order-costing-system retrieved on 18th September 2018 from
https://www.accountingtools.com/articles
Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. Bookboon.com