Reply to attached DB post

Discussion board forum 2 thread 0

Discussion Board Forum 2 Thread

Eric M. Smith

Discussion Board Forum 2 Thread

Job Costing System

A costing system which stores and allocates costs to a particular job, customer, project, or contract is known as a job costing system (Blocher, Stout, Juras & Cokins, 2016). Considered an easier methods of accounting for costs, job costing is typically used for products which are not mass produced (Hicks, 2010). With a job costing system, a job cost sheet is used that records and summarizes the different types of costs associated, such as labor, materials, and overhead. From the beginning to the end of a project, every cost is recorded as they go through each step of the production process. Once completed, the total of all of the costs recorded on the job cost sheet make up the total cost of the job. Not only does this product costing system make it easier to trace the costs for a specific product, but it also helps reduce defects and keeps employees motivated (Blocher et al., 2016). According to Blocher et al. (2016, p. 106), “Job costing is used extensively in service industries such as advertising agencies, hospitals, and repair shops, as well as consulting, architecture, accounting, and law firms.” For example, Northrop Grumman uses the job costing system when valuing the work within a contract. Northrop Grumman breaks down every cost associated with the production and delivery of the product to determine the total cost of the work agreed upon to be completed. By using this cost system, Northrop Grumman is able to ensure that the work being completed is profitable. Another example would a local surgeon. With the project costing system, the organization is able to track the cost of the surgeons and the costs of overhead. As a result of this system, the surgeon’s office is able to properly bill clients based on the complexity of their surgery. Lastly, construction companies find the job costing system very resourceful. Based on the belief that the only revenue producing work completed by construction firms are building, renovating, and maintaining buildings, it’s essential that these firms use a proper job costing system (Moldof, 2014). If firms use the job costing system appropriately, strategic decision making is improved by being able to assess an accurate description of the costs associated with each project.

Process Costing System

Another widely used system used to track costs is the process costing system. Different from the job costing system, the process costing system adds costs in regards to the processes and disperses these costs to a various amount of similar products (Blocher et al., 2016). The majority of organizations that use the process costing system engage in mass production. According to Blocher et al. (2016, p. 170), the industries most affiliated with the use of the process costing system are “chemical, oil, refining, textiles, paints, flour canneries, rubber steel, glass, food processing, mining, electronics, plastics, drugs, paper, lumber, leather goods, metal products, and sporting goods”. For example, grocery store Vons uses the FIFO method, which is a type of process costing system. With the FIFO method, Vons is able to calculate the costs associated with only the current period. Therefore, an older loaf of bread produced and put on the shelf in January will be accounted for in January, even if it was not sold until February. This method makes the most sense for grocery stores since the majority of their products expire. In addition, Dick’s Sporting Goods uses another type of process costing system known as the weighted-average method. Since the price of direct materials and inventory levels are relatively stable, this method is most appropriate for Dick’s Sporting Goods.

Conclusion

In conclusion, it is important for an organization to have the right costing system for their given situation as there is no single system that meets every strategic and reporting requirement (Fisher & Krumwiede, 2015). If the wrong system is implemented, this can lead to poor decision making. If a firm is producing a more unique product or service, the job costing system is more appropriate. However, if a more homogeneous product is being produced, a manger should look into the different process costing system. With the right cost system in place, managers are better able to analyze and manger their costs.

References

Blocher, E. J., Stout, D. E., Juras, P. E., & Cokins, G. (2016). Cost management: A strategic emphasis (7th ed.). Boston, MA: McGraw-Hill.

Fisher, J. G., & Krumwiede, K. (2015). Product costing systems: finding the right approach. Journal of Corporate Accounting & Finance, 26(4), 13-21. doi:10.1002/jcaf.22045

Hicks, M. (2010). Accounting for decision making: A study guide (1st ed.). Raleigh, NC: Synergistics Inc.

Moldof, A. (2014). The important basis of job costing construction: the case for a three-tier general ledger job cost numbering system. Construction Accounting & Taxation, 24(5), 43-47. Retrieved from http://ezproxy.liberty.edu/login?url=https://search-proquest-com.ezproxy.liberty.edu/docview/1628369153?accountid=12085