The job
order costing method is used for measuring and individual job or batch order
whereas the process costing method is used for measuring different aspects of
the process itself. The process costing method also measures the standardized
units that are being produced. Process operations are repetitive, highly
standardized, and usually used in situations that involve high production
volume. The products processes have little flexibility and result in a
homogeneous product or service. Job order operations are custom orders that
result in heterogeneous products or services. Unlike the operations for
processes, job order operations have a low production volume, a high level of
flexibility during the production process, and low to medium standardization of
the actual product.
All of
this means that the costing methods for both have to be tailored to the type of
production that is being implemented. They have both similar and contrasting
aspects to the inner workings of their systems. Job order costing specifically
assigns jobs direct materials, labor, and overhead. When the cost of the total
job is divided by the number of units that the job produced, the result is the
total cost per unit.
The
process costing method assigns these same direct materials, labor, and overhead
to a specific process as opposed to a job. The processes total cost is found
and then divided by the amount of units that must pass through the process
during production. The result is the cost per equivalent unit. Both methods are
“ultimately interested in determining the cost per unit of product (or service)
resulting from either system” (Wild & Shaw,
2012, 1).
The
company that I work for would best benefit from the process costing method. We
do fuel acquisitions which is a service we provide for our customer, the warfighter.
We have several different methods that we use for each procurement. The easiest
way to place costing metrics on each acquisition would be to measure the amount
of money that is spent on each individual process required. An emergency buy
(ebuy), which normally takes a few days, does have the same processes applied
to it as a bulk fuel acquisition which takes month to complete. Using this
method would leave room for variety in the services that we offer.
References
Wild, J. J., & Shaw, K. W. (2012). Managerial
Accounting. New York: McGraw Hill/Irwin.
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