WRITTEN ASSIGNMENT UNIT 2 1 Written Assignment Unit 2 Aksamal Akhmetova University of the People WRITTEN ASSIGNMENT UNIT 2 2 Costing is an important management tool and the better the costing system, the more efficiently we can manage the business. Therefore, it is important that all managers have good practical knowledge of the various methods of costing, be able to effectively use the chosen system, and also give recommendations for its improvement (Heisinger, K., & Hoyle, B. (n.d.) . Depending on the industry affiliation of the applied production technology, the performed works and the rendered services at the enterprises we should apply certain methods of costing: 1. Job Order Costing is a cost accounting method in which costs are accumulated for individual orders (jobs). An order (work) may be the production of a product or service, for example, repair of a car or treating a patient in a hospital. Cost is ascertained separately for each job (Horngren, T., 2011). It is best suited to be used for: furniture making, construction, architecture and painting. 2. Process Costing is ascertaining the cost at each stage of manufacturing. It is a method of accumulating direct cost and allocating indirect cost in manufacturing process. When standardized identical products is produced and passing through many processes, process costing is used. It is best suited to be used for: paint manufacturing, petroleum products, cool drinks, beverages. 3. ABC Costing identifies activities in a unit and allocate cost to the activities based on the actual consumption. ABC costing is used to assign the cost to the products. Cost drivers are identified in ABC costing (Needles, Belverd E.; Powers, Marian., 2013). It is best suited to be used for: home builders, where overhead cost is more and activities are more. WRITTEN ASSIGNMENT UNIT 2 3 Compare and contrast: Differences Job Costing Process Costing ABC Costing Based on Customer Based on Continuity Based on the Activities Order of process Involved Low production High production High or low production volume volume volume Heterogeneous Homogeneous Both type of products products products Job cost sheet is used Production cost report is used Unit cost computed Unit cost computed Unit cost computed by by Job by Department Activitity Cost transferred when Cost transferred when each job is completed each accounting period is ended Benefits Suitable for Cost plus Average cost can be Accurate Cost contracts easily determined Calculation Actual cost and Allocation of Correct decision Budgeted Cost are expenses is easily making compared made Budgetary Control Standard Costing is Exact profit can be System is followed followed known WRITTEN ASSIGNMENT UNIT 2 Limitations 4 Job Costing is Average Cost is used Identification of expensive to value the products Activities is more work involved No standardization in This cost may not be Very costly to Job Costing suitable for all implement purposes More manual work is Can’t provide More technical work is involved accurate estimate required. when there is single process and many products Costing method useful for Well Suit World: Following are the points to be considered: material is the same for all the suits, all suits undergo same production and all suits undergo same quality inspection process. By the above observation, Process Costing is suitable to Well Suit World. WRITTEN ASSIGNMENT UNIT 2 5 References Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Retrieved from https://2012books.lardbucket.org/books/accounting-formanagers/index.html[KM1] Horngren, C. T. (2011). Cost accounting. Hong Kong: Pearson. Needles, Belverd E.; Powers, Marian (2013). Principles of Financial Accounting. Financial Accounting Series (12 ed.). Cengage Learning