Joy Grant
Littles

Within any company,
large or small, correct costing is considered a vital aspect of the accounting
process. Selecting process costing or a job order costing system is
based off of what type of product the organization is going to sell or process
[Muse, 2013]. A job order costing system can be seen in
manufacturing businesses like for furniture, printing, or shipbuilding, which
all use this type of system. The process costing method is
noticeably used in industries where raw material is changed into an identical
product like toilet paper, flour, or cereals which are created in a continuous
rotation, in other words, like on an assembly line [Wild & Shaw,
2012]. As an example Ford Motor Company builds vehicles, which are built
on an assembly line – the process costing method would work best in this
organization. Or a service organization like the American Red Cross
which produces multiple things would benefit from using the job-order costing
system.

Both
methods have an overall basic goal, to align materials, labor, and overhead
costs during the development of products [Wild & Shaw, 2012]. As
well as present a method for calculating unit product cost. Each are
consistent in using identical manufacturing accounts, which include
manufacturing overhead, raw material, work in process, and finished
goods.

Various
things differ between process costing and job-order costing and are obvious in
each area of their processing methods. If an organization where to
produce multiple jobs that were different a job-costing method would be used
because these types of jobs have distinctive production
needs. Process costing on the other hand, an organization would
utilize this method when producing a non-stop type cycle of identical products
[Wild & Shaw, 2012]. Also when using process costing it collects
costs by individual department and then names each costs so that when they flow
through each department during a cycle they will be
recognizable. This type of data collection is not done in job
costing.

Knowing
from the start that my CFO is going to start out her new production line with
one item but will eventually build onto it with a variety of other options, my
recommendation would be for her to choose a job-ordering costing method within
her accounting processes. Reason being, as stated before, this
method will track specific costs with specific jobs, making it easier to trace
cost associated with direct and indirect material. It will also provide
managers with data to calculate profit earned per separate job so that they can
quickly determine whether or not a specific job is worth continuing in the
future. And finally implementing a new a costing method in
mid-stream of production would not be cost effective for the
company. The overhead costs to re-vamp a new system, production
slow-down, costs of training will all have a negative effect in revenue earned
if this change is done after the fact. It should be put in place
from the beginning so as to keep the products moving and the profits flowing.

References:

Wild, J., Shaw, K.
[2012]. Process Costing and Analysis. Managerial Accounting

Muse.
[2013]. Process vs. Job Order Costing. Retrieved 06/25/13
from:

.aiuniv.edu/_layouts/MUSEViewer/Asset.aspx?MID=MU13187&aid=AT65551″>https://class.aiuniv.edu/_layouts/MUSEViewer/Asset.aspx?MID=MU13187&aid=AT65551