Human resource management

Comparison of job-order and process costing systems

How events in a job-order costing system can affect financial statements

Events in a job-order costing system can affect financial statements in a number of ways, including:

• Underapplied or overapplied overhead: If the overhead rate is not set correctly, there may be underapplied or overapplied overhead. This can affect the cost of goods sold and inventory expenses.
• Job losses: If a job is lost or cancelled, the company may incur losses on the job. This can affect the company's net income.
• Change orders: If a customer makes changes to a job after it has started, this can affect the cost of the job. This can also affect the company's net income.

Specific example:

A construction company is building a new office building for a client. The company uses a job-order costing system to track the costs associated with the project. The company estimates that the project will cost $10 million to complete. However, the client makes a number of change orders during the course of the project, which increases the cost of the project to $12 million. The company will have to absorb the additional cost of $2 million, which will reduce its net income.

How events in a process costing system can affect financial statements

Events in a process costing system can affect financial statements in a number of ways, including:

• Changes in production volume: If the production volume changes, this can affect the cost per unit produced. This can affect the cost of goods sold and inventory expenses.
• Scrap and spoilage: If there is a significant amount of scrap or spoilage, this can increase the cost per unit produced. This can also affect the cost of goods sold and inventory expenses.
• Product mix: If the product mix changes, this can affect the cost per unit produced. This can also affect the cost of goods sold and inventory expenses.

Specific example:

A food processing company produces a variety of food products, including cereal, bread, and cookies. The company uses a process costing system to track the costs associated with its production process. The company estimates that the cost per box of cereal is $1. However, there is a significant amount of scrap and spoilage in the production process, which increases the cost per box of cereal to $1.20. The company will have to absorb the additional cost of $0.20 per box, which will reduce its net income.

Conclusion

Both job-order and process costing systems can have a significant impact on financial statements. It is important for companies to understand how these systems work and how events within the systems can affect their financial statements.

Job-order costing system

A job-order costing system is used to track the costs associated with individual jobs or projects. Each job is assigned a unique job number, and all costs related to that job are tracked and accumulated under that job number. Job-order costing systems are typically used by companies that produce one-of-a-kind or custom products, such as construction companies, furniture makers, and machine shops.

Process costing system

A process costing system is used to track the costs associated with a continuous production process. The process is divided into departments or stages, and costs are accumulated for each department or stage. Process costing systems are typically used by companies that produce mass-produced or standardized products, such as food and beverage companies, chemical companies, and textile companies.