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Done - Assignment-2 Managerial Accounting

Job order costing assigns manufacturing costs to individual units of output when items are sufficiently different. It is appropriate when products are customized. Process costing assigns costs to units in large batches of similar items, as in Wet Suit World. Activity-based costing assigns overhead costs based on activities to better understand costs. Job order costing provides detailed cost analysis but requires clerical work. Process costing is simpler and less expensive but provides historical average costs. Activity-based costing provides more accurate unit costs but can be complex.

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608 views

Done - Assignment-2 Managerial Accounting

Job order costing assigns manufacturing costs to individual units of output when items are sufficiently different. It is appropriate when products are customized. Process costing assigns costs to units in large batches of similar items, as in Wet Suit World. Activity-based costing assigns overhead costs based on activities to better understand costs. Job order costing provides detailed cost analysis but requires clerical work. Process costing is simpler and less expensive but provides historical average costs. Activity-based costing provides more accurate unit costs but can be complex.

Uploaded by

Djahan Rana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Assignment-2

Managerial Account
Definition of Job Order Costing

Job order costing or job costing is a system for assigning and accumulating manufacturing

costs of an individual unit of output. The job order costing system is used when the various items

produced are sufficiently different from each other and each has a significant cost. (When a

company's output consists of continuous flows of identical, low-cost units, the process

costing system is more appropriate.)

Time to use: A job order cost system is appropriate when products manufactured or services

rendered are tailored to customers' needs. Due to customized services, the resources used for

different customers will differ in variety and quantity.

Definition of Process Costing

Process costing is a term used in cost accounting to describe one method for collecting and

assigning manufacturing costs to the units produced.

Time to use: A processing cost system is used when nearly identical units are mass produced.

Process costing is the optimal system for a company to use when the production process results

in many similar units. It is used when production is continuous or occurs in large batches and it

is difficult to trace a particular input cost to a specific individual product.

What Is Activity-Based Costing (ABC)?

Activity-based costing (ABC) is a method of assigning overhead and indirect costs such as

salaries and utilities to products and services. 

The ABC system of cost accounting is based on activities, which are considered any event, unit

of work, or task with a specific goal.

Time to use: ABC is used to get a better grasp on costs, allowing companies to form a more

appropriate pricing strategy. 


Assignment-2

Managerial Accounting
Compare and contrast the methods, considering both benefits and shortfalls

Advantages of Job Order Costing

Job order costing offers a detailed analysis of the costs of materials, labor cost and overheads by

functions and nature, makes it possible to appraise the profitability of a job, allocates overheads

based on a predetermined rate, makes easy to identify spoilage and defects to take corrective

actions, evaluates efficiency of different types of jobs with cost records by using statistical

techniques.

Disadvantages of Job Order Costing

Job order costing needs a great deal of clerical work in recording material issue, wage

computation and payment and overhead charges, strict control of costs associated with a job is

difficult since overheads are allocated on estimation.

Advantages of process costing

It is simple and less expensive to find out the cost of each process, easy to allocate the expense to

process in order to have accurate costs, production activity in process costing is standardized, the

products are homogeneous.

Disadvantages of process costing

The cost obtained at the end of the accounting period is historical in nature and is of little use for

effective's managerial control, since process cost is average cost, it may not be accurate for

analysis, evaluation and control the performance of various departments, once an error is

committed in one process, it is carried to the subsequent processes it does not evaluate

the efficiency of individual workers or supervisor.


Assignment-2

Managerial Accounting
Advantages of activity-based costing:

ABC provides a more accurate cost per unit. As a result, pricing, sales strategy, performance

management and decision making should be improved, recognizes that overhead costs are not all

related to production and sales volume, applied to derive realistic costs in a complex business

environment, can be applied to all overhead costs, not just production overheads, used just as

easily in-service costing as in product costing.

Disadvantages of activity-based costing:

ABC will be of limited benefit if the overhead costs are primarily volume related or if the

overhead is a small proportion of the overall cost, it is impossible to allocate all overhead costs to

specific activities, ABC can be more complex to explain to the stakeholders of the costing

exercise.

Regarding the Wet Suit World Process costing system is the optimal system for this company

to use the production process. This process costing is used when nearly identical units are mass

produced. Though they vary in thickness but All suits undergo the same production and quality

inspection processes. This process is also simple and less expensive to find out the cost of each

process, easy to allocate the expense to process in order to have accurate costs, production

activity in process costing is standardized, the products are homogeneous.


Assignment-2

Managerial Accounting

References
https://opentextbc.ca/principlesofaccountingv2openstax/chapter/compare-and-contrast-

traditional-and-activity-based-costing-systems/

https://www.investopedia.com/terms/a/abc.asp

https://www.accountingcoach.com/terms/J/job-order-costing

https://www.chegg.com/homework-help/job-order-costing-appropriate-types-businesses-use-

chapter-1-problem-32q-solution-9781133712701-exc

https://opentextbc.ca/principlesofaccountingv2openstax/chapter/compare-and-contrast-job-order-

costing-and-process-costing-2/

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