BA 225 Week 3 Discussion Questions

Operations vs. Process Costing

Question A

What is the difference between operations costing and a process costing system? How does a company decide whether to use a job order or a process cost system?

Operations costing and a process costing system are both commonly used in the manufacturing sector however, there are some differences between them.

For a job order, costs are accumulated by individual jobs while for process costing, costs are accumulated by departments

For Job order, unit costs are computed by the job on the job cost sheet while for process costing, unit costs are computed by departments.

For process costing, department product report is the main document while for Job order, job cost sheet is the key document controlling the accumulation of costs by a job

A company decides whether to use a job order or a process cost basing on what it makes. If you manufacture a homogeneous product, then process costing is probably be most appropriate. If you manufacture products that come in differentiated batches, job-order costing would be more appropriate than process costing.

Question B

How does the treatment of costs differ in ABC systems as opposed to traditional cost systems?

Traditional costing is little simpler but also not that accurate than ABC and assigns overhead costs to products based on an arbitrary average rat. ABC is complex and more accurate than the traditional costing as it first assigns indirect cost to activities and then assigns the cost to activities and then to products based on product’s usage of the activities.

Reference

Bamber, L., & Braun, K. (2008). Managerial accounting. Upper Saddle River, N.J.: Pearson Prentice Hall.