The student must then post reply of at least 150 words by 11:59 p.m. (ET) on the assigned Module: Week. The student must support the assertions with at least two scholarly citations in current APA edition format which must have been published within the last five years.
Job Costing, Process Costing, and Activity-Based Costing
The job costing system aims to trace the direct costs to the job and allocate the indirect costs (Buckley,2020). A job is a product or service that can be easily differentiated from other products or services (Lanen, et al., 2020). An example of a company that uses job costing is Ben Hur construction (Blocher, et al., 2019). The company uses this system because their products go through a discrete set of steps that all units can but might not go through it. It is very easy to differentiate between units in the construction firm and recording cost and revenue for each job are easier. Also, Ben Hur uses job costing because its products are not identical. “A process costing is an accounting system used when identical units are produced through uniform production steps” (Lanen, et al., 2020, page 240). An example of a company that uses process costing is Coca-Cola (Blocher, et al., 2019). Coca-Cola produces single products(soda) and it goes through a continuous flow process that all units (can, bottles of soda) follow. The production process produces a series of identical, homogenous units (Lanen, et al., 2020). Lanen, et al., (2020), define Activity-based costing (ABC) as a two-stage product costing method that assigns costs first to activities and then to the products based on each product’s use of activities. While an activity may be any discrete task or event that a firm undertakes to make, deliver a product or service. An example of a company that uses ABC is General Motors due to automation and advancement in the auto industry. Direct labor has become less appropriate as a basis for allocating overhead. Also, because ABC is more grounded in the production process that helps managers in taking a decision rather than the accounting system that supports financial reporting to shareholders units (Lanen, et al., 2020).
The similarities between job costing, process costing, and ABC is that they all assign a direct cost to products and allocate manufacturing overhead cost to products using some handful of allocation bases like direct labor, direct material, or machine utilization units (Lanen, et al., 2020). The difference between job costing, process costing, and activity costing is that while Job costing is used when an individual production center works on different products at a specific time, process costing is a system that is used for identical low-cost items and ABC is used to assign a cost to activities. In Job costing, production or services are carried out based on a specific order, each job is a cost center and labor-intensive. Process costing is used for homogeneous products, it requires less paperwork, it has a feature of work in progress. ABC allocates cost to activities and not departments or cost centers. The nature of its cost driver differs from that of job and process costing. (Lanen, et al., 2020 & Blocher, et al., 2019).
Cost analysis both in the manufacturing and the service industry is very important. According to the bible “For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? (King James Version 1769/2017, Luke 14:28).