Tweet
The two most basic types of cost accounting systems, which are fundamental to how a company tracks and accumulates costs for production, are Job Order Costing and Process Costing.
These two methods are used depending on the nature of the company's production process.
Job Order Costing
Job order costing is used when a company produces unique, identifiable products or Bookkeeping Services in Buffalo that are customized to a specific customer's order or done in distinct batches, or "jobs." The costs (direct materials, direct labor, and manufacturing overhead) are tracked and accumulated separately for each individual job.
Key Characteristics:
Production: Customized, heterogeneous, or distinct products (e.g., a specific construction project, an advertising campaign, custom furniture, or a specialized machine repair).
Cost Object: The Job or order itself.
Goal: Determine the total cost and the unit cost for each separate job.
Process Costing
Process costing is used when a company produces large volumes of identical or very similar products through a continuous, uniform production flow. The products lose their individual identity as they are mass-produced in a Bookkeeping Services Buffalo of continuous steps or processes. Costs are accumulated by process or department for a specific period of time.
Key Characteristics:
Production: Homogeneous, identical, and mass-produced units (e.g., beverages, petroleum, textiles, chemicals, or food processing).
Cost Object: The Process or department for a given period.
Goal: Calculate the average unit cost by dividing the total process costs by the total units produced during the period.
These two methods are used depending on the nature of the company's production process.
Job Order Costing
Job order costing is used when a company produces unique, identifiable products or Bookkeeping Services in Buffalo that are customized to a specific customer's order or done in distinct batches, or "jobs." The costs (direct materials, direct labor, and manufacturing overhead) are tracked and accumulated separately for each individual job.
Key Characteristics:
Production: Customized, heterogeneous, or distinct products (e.g., a specific construction project, an advertising campaign, custom furniture, or a specialized machine repair).
Cost Object: The Job or order itself.
Goal: Determine the total cost and the unit cost for each separate job.
Process Costing
Process costing is used when a company produces large volumes of identical or very similar products through a continuous, uniform production flow. The products lose their individual identity as they are mass-produced in a Bookkeeping Services Buffalo of continuous steps or processes. Costs are accumulated by process or department for a specific period of time.
Key Characteristics:
Production: Homogeneous, identical, and mass-produced units (e.g., beverages, petroleum, textiles, chemicals, or food processing).
Cost Object: The Process or department for a given period.
Goal: Calculate the average unit cost by dividing the total process costs by the total units produced during the period.
