MOS 372 - Job Costing vs Process
Product Costing Systems
Job Order vs. Process Costing
 Accumulates the costs of production and
assigns them to the products created
 Used in financial and managerial
accounting
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Production Process
Job-Order Costing
 System which collects costs for each
physically identifiable job or unit of product
as it moves through the production process
Unit
Production
Batch
Production
Assembly-Line
Production
(Project or
Job Shop)
Process
Production
(Continuous)
 One house, a 10,000 copy run of a book or one
set of financial statements
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Aspects of Job-Order Costing
Manufacturing-Overhead Cost
 Direct material costs
 For this section, O/H application will assign
costs to jobs using a predetermined rate
 Material requisition
 Keep in mind, you know ABC, Step/Direct
 Bill of materials
which would be more appropriate
 MRP (material requirement planning)
 Predetermined O/H rate:
 Direct labour costs
Estimated total O/H Costs
.
Expected Amount of Allocation Base
 Time tickets/time sheets
 Manufacturing-overhead costs…
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© John Siambanopoulos
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MOS 372 - Job Costing vs Process
Issues in O/H Application in
Job Order Costing
Overhead Application
 Accuracy vs. timeliness cost/benefit
 Under- and over-applied overhead
 Actual O/H rate (end of accounting period) vs.
 Where the predetermined rate’s expected cost
and the actual overhead cost differ
 Predetermined rate (beginning of period)
 Treatment:
 Single vs multiple overhead rates
 Choosing the cost driver
 Allocate to COGS (entire amount)
 Allocate to WIP, COGS and Finished Goods
 Limitation of D/L or M/H as drivers
based on what is in inventory for each
 Carry forward
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Job-Order Costing in Services
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Overhead in Services
 Law and accounting firms, hospitals,
universities, ad agencies, mechanics, etc. all
use some form of job-order costing
 Labour and materials are traceable and tightly
controlled
 O/H is typically allocated based on some %
of another driver (usually labour)
 Budgeted Overhead Rate:
Budgeted overhead
= $300,000 = 250%
Budgeted direct labour
$120,000
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Process Costing
Process Costing
 Both systems: assign costs to products and
have a way of figuring out single unit costs
 “Process” units however, are usually:
 Continuous and
 Homogeneous
 Costs are collected in more of an accumulated
way and time-based
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 All production costs for an accounting period are
collected (not identified with specific units or
batches)
 Divide by the number of units produced for an
average
 This is used for calculating the transfer cost from
WIP Inventory to Finished Goods/COGS
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MOS 372 - Job Costing vs Process
Equivalent Production
Weighted-Average Method
 Unfinished products are a counting issue
 It can be assumed at 50% for the whole batch,
or if possible, measure the units to a
percentage completion and consider full
product equivalents
 Ten products that are all half finished = Five
 Materials and conversion costs are considered
for equivalent units
 Blends together units and costs from the current
period with units and costs from the prior
period
 Equivalent Units =
Units transferred (Finished Goods) +
Equivalent units in WIP
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FIFO Method with Costing
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FIFO
 Weighted-average is what has normally been
used
 FIFO differs in the way certain calculations:
 The computation of equivalent units and
 The way beginning inventory costs are treated in
 The costs of ending WIP units aren’t “carried
forward” to the next period
 Current period performance is compared only
to current period costs
 Therefore only costs from the current period are
considered
the reconciliation report
 Only work needed to be be completed is
included in beginning inventory
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Shrinkage and Loss
Process Costing Process
 These losses must be pulled from the WIP
 Two ways of allocating normal losses:
 Loss charged to manufacturing overhead
 Loss spread over all the good units of work done
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1. Analysis of physical flow of units (how many
to account for)
2. Calculation of equivalent units (for DM and
conversion activity)
3. Computation of unit costs (i.e. cost per
equivalent unit for DM and conversion)
4. Analysis of total costs (WIP vs. F/G)
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MOS 372 - Job Costing vs Process
Choice of Systems
Operation Costing
 Most situations assume the nature of the
production process would indicate the cost
system (but not always)
 Process systems require less effort, and
sometimes are used even when the products
aren’t alike
 Process systems find unit cost averages.
How is that a potential problem?
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 A hybrid between job-order and process costing
 Where some products have similar conversion
activities but different materials:
 Conversion costs are accumulated by department
(DL and V O/H)
 DM are accumulated by job-order or batch
 This often seen in “batch” types of production
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 Typically, a predetermined rate for
conversion costs is found:
Budgeted conversion costs (DL and O/H)
Budgeted cost driver (or activity base)
e.g. a run of whole wheat bread vs. white
(premium grade vs. economy grade products)
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© John Siambanopoulos
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