Why residential plumbing contractor company use job's costing instead of process costing?
Simply because every job done for a customer in that industry is unique. A residential contractor doesn't go around installing the exact same plumbing in every customer's house. No - it's based on what the customer wants to purchase, i.e. their job order.
Which companies use job-order costing or process costing and how they can use ?
A construction company would be a good use of job order. Each job would be the location or person's name who needs the job done. They would know which costs were associated with this job by making sure the P.O was the job name (location or person's name). For example, Bill Me comes to XYZ Construction and needs them to build him a house. The location is 123 Anywhere Lane, Here, State, USA. His job identifier would be Bill Me or Me, Bill or even 123 Anywhere. All costs would be charged to his job. This is so that you can see how much his job costs and how much profit was made from him. Job order costing is normally used for customized products such as construction, hand carved sculptures, hand painted portraits, heating and air conditioning, etc.
What is process costing?
Process is the work going on in the manufacturing sector of a company. Process costing is the method to identify the manufacturing costs going on through the process. In a mass production company, the cost of each product produced is considered to be the same. As process costing homework help experts suggest, these costs are accumulated over a fixed period of time and after summarizing they are allocated to all of the units that have been produced. On the other hand in the cases of individually manufactured products, online writers suggest to use the job costing method to accumulate the cost and assigning them to the products. Understanding the concept with clear facts and illustration is much ore beneficial for the students to attain highest marks in an examination.
How does process costing differ from job order costing?
Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units. For example, the construction of a custom-designed piece of furniture would be accounted for with a job costing system. The costs of all labor worked on that specific item of furniture would be recorded on a time sheet and then compiled on a cost sheet for that job. Similarly, any wood or other parts used in the construction of the furniture would be charged to the production job linked to that piece of furniture. This information may then be used to bill the customer for work performed and materials used, or to track the extent of the company's profits on the production job associated with that specific item of furniture.Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. For example, the production of 100,000 gallons of gasoline would require that all oil used in the process, as well as all labor in the refinery facility be accumulated into a cost account, and then divided by the number of units produced to arrive at the cost per unit. Costs are likely to be accumulated at the department level, and no lower within the organization.Given these descriptions of job costing and process costing, we can arrive at the following differences between the two costing methodologies:Uniqueness of product . Job costing is used for unique products, and process costing is used for standardized products.Size of job . Job costing is used for very small production runs, and process costing is used for large production runs.Record keeping . Much more record keeping is required for job costing, since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.Customer billing . Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.In situations where a company has a mixed production system that produces in large quantities but then customizes the finished product prior to shipment, it is possible to use elements of both the job costing and process costing systems, which is known as a hybrid system .Job costing and process costing can be used in both manual and computerized accounting environments.
What are the job-order, process, and activity-based costing systems?
As has already been said, these are 3 costing systems used selectively and in combination to suit different styles of business or to deliver a different focus or perspective view on a company's costs.Costing systems are basically (and unsurprisingly) used by companies to determine the cost of a product, such that the relationship to the revenue generated can be established and reports or quotes generated. The costing system/s chosen will each provide a different focus and perspective. A company may wish to provide a multi-focal view for several reasons, such as for COGS reporting or for generation of a comprehensive quote for service. So in a job (or "job-order") costing system, the cost of one job differs from the cost of any other and must therefore be accounted on a per job basis; With a process-based costing system, all jobs are similar and are accounted for by department;And in an activity-based system action is taken or work is performed by people and/or equipment and is accounted for per activity. It may be that a business will need to use job or process costing for a product or service-based quote and then add on an activity-based "burden" to cover non-manufacturing "overheads". Wikipedia may help explain further: Job costing
Cost accounting problem need help?
1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ? Required (a) Budgeted indirect-cost rate = Budgeted indirect costs / Budgeted direct labor-hours $8,300,000 / 166,000 = $50 per direct labor-hour (b) Actual indirect cost rate = Actual indirect costs / Actual direct labor-hours $6,520,000 / 163,000 = $40 per direct labor-hour 2. What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing? (a) Laguna Model: Normal costing Direct cost: Direct materials $106,760 Direct labor 36,950 Total 143,710 Indirect costs 48,000* Total costs $191,710 *($50 x 960) Mission Model: Normal costing Direct costs: Direct materials $127,550 Direct labor 41,320 Total 148,080 Indirect Costs: Assembly support 52,500* Total costs $200,580 **($50 x 1,050) (b) Laguna Model: Actual costing Direct costs: $106,760 Direct materials 36,950 Direct labor 143,710 Indirect Cost: Assembly support 38,400* Total costs $182,110 *($40 x 960) Mission Model: Actual costing Direct costs: Direct materials $127,550 Direct labor 41,320 Total 168,870 Indirect Costs: Assembly support 42,000* Total costs $210,870 *($40 x 1050)