The two main types of cost accounting systems are Job Order Costing and Process Costing. These systems are designed to track and assign the costs of production (Direct Materials, Direct Labor, and Manufacturing Overhead) to the final product or Accounting Services Buffalo, but they differ based on the nature of the company’s manufacturing process.
1. Job Order Costing
Job order costing is used when a company produces unique, identifiable, and heterogeneous products or services that are custom-made or distinct from one another.
When It’s Used: Industries where each unit or batch of production is treated as a separate project or “job.”
Key Feature: The system accumulates costs separately for each individual job or client order.
The Tracking Document: The primary document is the Job Cost Sheet, which summarizes all materials, labor, and overhead specifically charged to that one job number.
Examples: Construction companies, architectural firms, custom furniture makers, printing shops, or auto repair services.
Goal: To determine the precise profit or loss on a per-job basis.
2. Process Costing
Process costing is used when a company produces large quantities of homogeneous (identical) products in a continuous flow through a series of sequential production departments or processes.
When It’s Used: Industries where the output is undifferentiated, and it’s impossible (or impractical) to trace costs to a single unit.
Key Feature: Costs are accumulated and tracked by production department or process for a given period (e.g., the Mixing Department, the Shaping Department, etc.).
The Tracking Document: The primary document is the Production Report for each department, Bookkeeping Services Buffalo and calculates Equivalent Units of Production (EUP) to correctly assign costs to units completed and units still in process.
Examples: Chemical manufacturers, oil refineries, food and beverage producers (like soft drinks or cereal), and paper mills.
Goal: To determine the average cost per unit for a specific period.
